What can we expect from a new round of confrontation between the United States and China?
In 2019, when the COVID-19 pandemic had not hit yet the global economy, a trade war between these two economic giants led to a loss of more than 1% of the world’s gross domestic product.
Last November, the U.S. and China signed a truce. The Phase One Trade Deal was aimed at reducing further import duties by both countries. Despite its limitations and fragile nature, this phase has brought hope for the stabilization of U.S.-China relations with the prospect of further development after the presidential election in November.
The COVID-19 pandemic put U.S.-China relations on the back burner, but only for a short period. The events of the last few weeks have pushed the countries’ standoff back to the top of the global agenda. Almost every such event has been followed by turmoil in the financial markets.
China’s rhetoric over territories in the South China Sea is on the rise. In response to China’s willingness to expand control over Hong Kong, the United States has started to discuss possible sanctions on China.
The pressure on Huawei continues to grow as entry to the United States might be denied to its employees. Indeed, another Chinese company, TikTok, may soon join Huawei on the U.S. blacklist.
The U.S. demand to close the Chinese consulate in Houston for 72 hours brought the U.S.-China conflict to a new level. It gave rise to analogies by a number of observers and media outlets to relations between the United States and the Soviet Union during the Cold War.
Similarities between U.S.-China relations and U.S.-Soviet relations actually do exist, such as intraregional grievances, and mutual accusations over a range of issues including trade, technology, innovation and security.
Moreover, many other countries are constantly entering the conflict with China. In India, TikTok and dozens of other Chinese mobile apps have already been blocked. China is targeting Australia with sanctions in response to its strong advocacy for an investigation into the origins and handling of the COVID-19 outbreak.
The British government issued a landmark decision to exclude Huawei from U.K. 5G-core network deployment. In the near future, the European Union may follow the same path.
In return, Chinese authorities have said they are ready to take appropriate measures. It seems that the right moment to reset relations between Europe and China has arrived. And this has become possible thanks to interference from the U.K.
Five years ago, relations between London and Beijing were the most trusting among the Group of Seven major industrial nations. The Chinese government was forging ahead with plans to build a British nuclear power plant, increase British exports to China and implement technology and investment in the industrial revival program of the northern regions of England.
So far, little remains of what was planned. Chinese investment has been mainly limited to British logistics and real estate. Export flows and technology development have gone in the opposite direction of what was expected. Moreover, nuclear power plant construction is likely to be halted.
According to recent polls, 60%-80% of British respondents do not trust China. The Huawei ban on participation in the development of the 5G network was the logical consequence of Britain’s growing distrust in China and pressure from its American counterparts.
EU countries have long evaded U.S. pressure to take a hard-line stance on China by hiding behind moderate U.K.-China relations. But today, Boris Johnson’s radical decisions are pushing Europeans to make a tough choice.
On the one hand, many people on the continent still believe that Chinese trade deals and investments can bring benefits.
On the other hand, such problems as national security, technology leaks, copyright infringement and a growing trade deficit are becoming more acute. At this point, the European and American claims about China are similar.
Therefore, Europeans now want to thoroughly rethink their relations with China. In one of last year’s strategic reviews, the European Commission described China as a “systemic competitor.”
This year, the COVID-19 pandemic became the catalyst for this rethinking. In the last few months, the European Union has repeatedly reported about China’s overly persistent attempts to dominate the international narrative surrounding COVID-19 by spreading disinformation campaigns and propaganda through the European media.
Europe’s abiding lack of unity represents an obstacle to resolving such a global problem.
Proponents of open economic engagement remain firm in their position to continue this policy, which the German government particularly supports.
Countries such as Poland, the Czech Republic, Hungary and Italy have changed their attitude toward China. Until recently, they advocated closer ties to China, hoping to gain an economic advantage, primarily in the form of Chinese investment.
In reality, however, the volume of Chinese investment in Eastern and Central Europe falls far short of what was expected. And, in comparison to EU investments in these regions, Chinese investment is insignificant. Both in Europe and in the United Kingdom, popular distrust of China is on the rise.
The escalating confrontation between the United States and China remains one of the main global threats that could have a major impact on the world economy and financial markets.
Although neither side gains from this confrontation, the more it escalates, the higher the chance that the conflict will break out involving one of the most serious tensions between the U.S. and China, be it Taiwan, Hong Kong or cybertechnology issues.
Both the United States and China seek to establish clear lines between economic and technological interests, and are dragging the rest of this world into the process. And so far, there is no reason to hope that something may reverse this process or at least slow down its pace.
To this end, the Chinese government would have to radically reconsider its long-term economic and geopolitical strategies.
It is also improbable that a change of U.S. president in November will significantly alter the course of American foreign policy. On the contrary, the two leading parties compete with each other by demonstrating to voters how hard-line their position is on China.
The role of the European Union is something that could actually change.
If Republicans would stop attacking their European allies, the United States and the European Union could still get on the same page. Even if the European Union adopts a much more moderate approach to China, the United States could significantly strengthen its position in this confrontation.
And it will also mean that global polarization will continue. The confrontation between China and the West might drag on for decades through several governments.
The author, Alexander Martinenko, is head of the investment advisory firm Investment Capital Ukraine.
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