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US-China Relations: A New Cold War

Updated: Feb 15

During the Trump presidency, the US cemented a new stance on their policy on China. They went from engagement, economically cooperating with China, to trying to contain growth. This was seen with the trade war. China is also seen as having more aggressive foreign policies. The new stance from Washington towards Beijing conveys the worsening diplomatic relations between the two. Economic containment could also signify a wider attempt to contain Chinese growth of power in a national security viewpoint. In this essay, I will argue why recent US policies do show a clear return to great-power strategic policy making, but the situation, whilst being of grave significance, doesn’t necessarily mirror the Cold War in concept.

The rapid economic growth in China has led to fears in the USA of a new hegemon and peer-competitor to the US arising. China’s growth economically is likely going to result in China’s ability to grow a powerful military. This is because in a realist viewpoint survival is the priority in an anarchic, self-help system, therefore it is vital to have a strong military. Military strength is often built upon larger populations and wealth, therefore it is quite probable that at this rate, China will be able to challenge the USA's military dominance. Therefore, economic competition will likely be followed(or already has started to be) by a fierce security competition. Historically, it’s arguable that there is a threat of a major conflict if the US falls into the Thucydides' trap (Allison, 2018). This is when an existing hegemon is threatened by the rise of a new power and competitor and this inadvertently leads to a major war. This is a theory which is used by some to explain many major wars in the past, including the First World War.

This topic is important to study because these are the two largest economies and the two largest spenders on military. Therefore, any confrontation between these powers will have severe consequences for each other and states around the world. Due to globalisation, the world is now interdependent in what has been modelled as the cobweb model (Keohane and Nye, 1972, 1977). This idea claims that the world is interlinked through economic, cultural and political links. Both sides have many stakeholders on either side through multinational companies, who have global supply chains, and workers who are employed globally by these MNCs. Therefore any confrontation, even in an economic sense, will lead to global problems.

Since the 1970s, when President Nixon recognized the People’s Republic of China of mainland China to be the state’s legitimate leaders, over the exiled nationalist government based in Taiwan, it is considered that US engagement with China has led considerably to China’s rapid growth and development. After the split between the ideologically like-minded states of the USSR and China in the 1960s, America opportunistically saw strengthening diplomatic relations with China significant to try and contain the USSR in the Cold War. Known as realpolitik, this is a pragmatic approach based on making decisions due to present circumstances over inflexibility due to ideological differences. Following the end of the Cold War, the US maintained these relations with China, although it wasn’t needed in a wider great-power struggle. Keeping a “most favoured nation” economic status throughout the 1980s and 1990s, Americans believed that it would lead to the democratisation of China, in line with the belief of Francis Fukuyama(1992) that there would be no more opposing ideologies to liberal democracy. However, this was proved wrong and a result of the euphoria of the end of the Cold War. Following China’s introduction to the World Trade Organisation in 2001, after a strong lobby from the USA, China became the world’s factory, with a lot of production world wide taking place in China as well as high-tech capital flowing into the country. This has helped China’s explosive economic growth, becoming the second largest economy in the world. Its interdependence globally now makes it difficult to curb its economic growth. Realists would argue that the liberal belief that China wouldn’t look to become as powerful as possible, as the US has become, was delusional. Furthermore, China has stayed authoritarian. Mearsheimer argues that the US’ role in China’s economic growth fostered the rise of what would become the US’ greatest competitor. China’s ascendancy to a potential regional hegemon has created an ‘inevitable rivalry’ (Mearsheimer, 2021). Mearsheimer believed there would likely be escalating tensions between the two sides, eventually, leading to some sort of confrontation as both sides will go to tremendous lengths to achieve their objectives.

However, a reason why hostilities may ease is due to the costs to the many stakeholders on both sides. Interdependence between the two sides has meant that the US and China have a mutually beneficial relationship to some extent. China still depends on the global economy for energy sources and is still developing, therefore it is arguably in their interest to cooperate with the US. Both sides invest into the other, mutually creating more jobs. Environmental interdependence also makes it vital for these two industrial states to try and co-operate on the collective dilemma of climate change, which poses existential threats to both countries in the long-run. The mutual costs from increasing tensions may encourage détente. However, there are suggestions from Presidents Trump and Biden on decoupling the economies, meaning that they see some importance in reducing their dependence on China (Frontline PBS: Trump's Trade War, 2019).

Following China’s induction into the WTO, their GDP growth has increased ninefold (Nikkei, 2021). Many argue that China’s rise in trade has been positive-sum as it has been able to produce cheaper goods for people around the world. This led to a lot of foreign companies, including American ones, to invest in China in order to produce goods from there. Cheaper production costs meant more trade with China boosted the annual purchasing power of the average U.S. household by $1,500 between 2000-2007 (CFR, 2021). China has benefited tremendously from trading globally as its population has transitioned from having 90% of people in extreme poverty in 1978 to less than 1% now (Allison, 2018).

However, there have been contentious issues over the trade partnership between China and the rest of the world, which many US politicians haven’t felt were dealt with by the WTO. Firstly, with an increase of imports from China, there has been a loss of demand for domestic manufacturing jobs in the US, leading to significant unemployment in the sector. Furthermore, there was a more structural issue within the Chinese economic model. Whilst entry into the WTO was meant to lead to liberalisation of markets in China, with market forces and the private sector taking over from state led production, as time has gone on, Chinese economic reform hasn’t happened as Washington wished, with subsidies still being used on a large scale which creates an uneven playing field in Chinese firms’ favour. There is also the more cynical issue of government-backed Chinese hackers stealing US intellectual property. Sceptics of the growth of Chinese firms in international markets believe that unjust government intervention will allow Chinese industries to dominate markets around the world.

President Trump vowed to confront China on what he believed were unfair practices that were hurting US consumers and producers. Whilst in power, he took a unilateral approach to dealing with the trade issues with China. Aiming to rebalance their trade partnership, Trump bypassed the WTO by directly trying to coerce Beijing to concede to his terms. President Trump claimed several areas where the Chinese economy had to be reformed. He stated that America’s trade deficit to China needed to be reduced by $200 bn; Beijing needed to stop protectionist subsidies helping Chinese producers, giving them unfair international competitiveness; China had to stop stealing American intellectual property and that US exporters needed to have the same access and opportunities as domestic producers in China, as well as other demands. When Beijing refused these terms, Trump imposed tariffs on $100 billions of Chinese imports into the US. This was followed by retaliatory tariffs by China and this commenced the trade war.

Subsequent talks trying to resolve trade related issues have been unsuccessful, with a potential trade agreement in 2020 failing. The trade war has cost both sides. In the USA, a study has reported that around 300,000 jobs have been lost as a result of the trade war and that it has reduced US real GDP growth by 0.3% (Brookings, 2020). The cost of Chinese goods for US producers increased by as much as $80 billion due to Trump’s unilateral approach (Kucik and Menon, 2022). Furthermore, US exporters to China, such as farmers, experienced losses too as they were less competitive in Chinese markets due to tariffs. By 2019, the US's trade deficit to China had reduced slightly from pre-trade war levels, however, it was not close to the $200 billion which Trump had promised. The failure of Trump’s objectives could represent China being too large and too dynamic to be contained and that further strategies are unlikely to attract other countries in support (Bergsten, 2022).