US-China: A new cold war that's not like the other

The timing is striking. Leading up to June 6, D-Day commemorations on the south coast of England and the beaches of Normandy will cast the world’s gaze back to World War II – and the Cold War with the Soviet Union that followed. And they’ll be held amid rumblings of what’s rightly being called a new cold war – with China.

Yet as that conflict has intensified, there are signs this cold war will be different: less predictable, potentially more destabilizing, and harder to win. Ultimately, a more likely outcome may see the world’s two main powers sealing some form of modus vivendi – a mix of competition and cooperation – with which neither side will be entirely happy. 

For now, even that seems a long way off, with the escalating tariff war between the U.S. and China and the Trump administration’s move this month to rein in Chinese-owned Huawei, one of the world’s leading technology companies. But the Huawei dispute highlights both the reasons for intensifying competition with Beijing and why it could be tougher than the first Cold War to navigate.

If they’re different, why do they look similar?

On the surface, the two cold wars are similar: against Communist-ruled nuclear powers, geopolitical rivals intolerant of political dissent.

But even at periods of high tension in the first cold war – like the early 1980s, when I was the Monitor correspondent in Moscow – the USSR’s military power was offset by its inability to match the West economically and, above all, technologically.

Though the microcomputing age was in its relative infancy, I still remember the best of the self-deprecating Soviet jokes at the time. It was about a central-planning slogan for the USSR’s computer industry: “Soviet microchips … the largest microchips in the world!”

China, and the 21st-century world, are different, as the Huawei dispute and the wider U.S.-China trade war make clear. China has the world’s second-largest economy. Under President Xi Jinping, it has been recalibrating toward high-tech investment. It is also one of the West’s most important consumer markets. And it is intricately entwined in the world economic and financial systems, whether as part of complex international supply chains or as principal holder of U.S. Treasury bonds (America’s debt).

Could all that be unraveled, especially at a time when U.S. President Donald Trump and other nationalist-populist leaders have been echoing concerns, and resentment, about the pace of globalization? The short answer is yes. In theory. But – unlike in Cold War 1 – that would risk both sides, and the world economy, feeling real pain.

The ability to disrupt

In moving to limit U.S. companies’ dealings with Huawei, President Trump undeniably has the ability to inflict major disruption on the Chinese tech giant. Even his political critics broadly accept the administration’s view that Huawei’s world-leading role in equipment for telecommunications networks raises a potential security threat, especially with the planned rollout of next-generation 5G systems.

But with many Western suppliers still behind Huawei, that could mean a delay in 5G. And Huawei’s state subsidies, plus its ability to draw on government credit lines, mean it can undercut competitors on price.

Huawei is also the world’s second-largest producer of smartphones. Keeping U.S. manufacturers from supplying microchips, or Google from licensing its latest software, would seriously set back the Chinese firm, until and unless it could source or develop alternatives. But again, U.S. companies would lose revenue.

Just this week, China issued a new reminder of its own potential leverage against the U.S. and the West. It hinted at curbing exports of so-called rare-earth minerals, a group of elements with properties making them critical in manufacturing everything from smartphones and pharmaceuticals to lasers and airplane engines. China accounts for about 70% of world production.

This competing leverage has already been evident in the U.S.-China tariff war. Yet the Huawei dispute may hold another message for the longer term.

So far, Washington has had mixed results in getting European states to exclude the Chinese company from their 5G networks – even though Europe does share U.S. concerns about China’s growing economic and geopolitical footprint, and its potential security implications.

So it may be worth remembering, with the current U.S. administration often dismissive of the trans-Atlantic alliance, that the strength of that partnership was a major factor in the outcome of the first Cold War.