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Do we already have the Second Cold War?

Paweł Borys
Do we already have the Second Cold War?

The coronavirus pandemic ignites the new Cold War

The current economic crisis caused by the coronavirus pandemic is the largest since the Great Depression of 1929-32, which America and Europe dealt with differently. In the U.S., the response to a decline in production of over 40% and mass unemployment was the New Deal, replacing ultra-liberal economic policy with interventionism and protectionism that restored economic growth. Europe plunged into social and political instability, and Fascism broke out, leading to World War II.

Already during the 2009 recession there were voices that such serious crises can lead to a military confrontation. At present, no one talks about the risk of a conventional war, but there are concerns about a significant increase in the social, political and international instability. All the more so because in the last decade tension has been growing, as exemplified by the Middle East, Hong Kong, North Korea and the US-China trade war. Globalisation has come to a halt in previous years, which can be seen in the stagnation of trade in relation to world GDP and the biggest increase in the number of protectionist actions registered by the WTO in years. The enormous costs of the current recession caused by COVID-19, social unrest, and important political events such as the US elections make up the main areas of political and economic influence, and the main parties in the rivalry for global leadership are the USA and China. The SARS-CoV-2 virus, which has spread all over the world from the Chinese province of Wuhan, is now causing a surge in anti-Chinese sentiment in many countries, especially in the USA and the UK. A few days ago, China's Minister of Foreign Affairs, Wang Yi, stated that some political forces in the United States are causing US-China relations to be “on the verge of a Cold War” and that “this is dangerous and could endanger the world peace.”

Unfortunately, everything indicates that the Cold War between the USA and China has just begun. Taiwan and Hong Kong may be a sort of Cuban Crisis of the previous Cold War. Deutsche Bank analysts have presented an analysis indicating that the current tension in US-China relations resembles the US-Russia situation in 1961 and 1962. The current Cold War will define the geopolitics and world economic order in the 21st century. It will take decades and Poland, like other European countries, will have to choose the side of the new Iron Curtain.

Berlin Wall of Technology

The current Cold War is not as strongly ideological as the struggle of communism against democracy and capitalism. However, it is also a conflict between the world of democratic and undemocratic values. Stalin was wrong to say that the capitalism and communism cannot coexist. Since 1978, modern China has been moving in the economic sphere towards the market and private property, but at the same time – in the sphere of human rights and political freedoms – it is still a communist state with totalitarian characteristics. However, it must be admitted that the economic policy of the Middle Kingdom, supported by the globalisation promoted by the USA and the EU, has been extremely successful in the last 3 decades. China's share of global GDP increased tenfold in this period from less than 2% to nearly 20% in 2020. In industries such as glass and ceramics, clothing, electrical appliances, metals and electronics, China dominated the global market with a share of 40-50%. Every third car is produced in China, and in many industries Europe and the USA have become dependent on supply chains from Asia.

The world economic order, in short, has operated since the 1990s: trade and capital flows have been liberalised, the US (and partly Europe) gave up traditional production to China, allowing for a huge trade deficit financed by China's purchase of US bonds for trillions of dollars. In turn, the USA focused on new technologies hoping that the development in Asia would allow them to export and develop exports in this area. Interestingly, the CIA on its website The World Factbook currently indicates China as “the largest economy and exporter in the world”, estimating Chinese GDP at over $25 trillion (in purchasing power parity). America and Europe have supported the development of Asia, which of course has contributed to an unprecedented decline in world poverty and prosperity also in developed economies (the so-called great moderation), hoping that the rules of the game are equal and thus they will build an outlet for their technologically advanced industries. That is why the CIA admits that China has become the world's largest economy, but at the same time it calls the US the world's most technologically powerful economy with a GDP estimated at nearly $20 trillion (according to PPP).

And this is where the two main reasons for the inevitable Cold War with China in the 21st century arise. First of all, the Middle Kingdom is known for not providing a “level playing field”, bypassing the rules of free trade by artificially weakening the currency, disregarding copyright, capital restrictions and market access. In Poland, for example, the effect of this is the ratio of exports to imports from China is 1:10. Secondly, the US and Europe realised with the advent of the Chinese global 5G technology offered by Huawei that China will not adopt Western technology, but its goal is to create its own and disseminate it around the world. At this point the trade war began, which in the last 3 years was a prelude to the current global Second Cold War.
The US and China started a real race for global technological leadership, creating a kind of Berlin Wall in the sphere of technological standards. The Chinese equivalent of the World Wide Web is Hu Lian wang. In telecommunications, the answer to Chinese 5G is 5G or 6G based fully on the infrastructure and software developed in the West. A few days ago, Prime Minister Boris Johnson presented the initiative of the “D10 alliance”, involving the G7 countries as well as India, Australia and South Korea, to build a Western 5G standard. In the area of operating systems, China has replaced Android and iOS by the American giants Google and Apple with its Ark OS. The answer to GPS is BeiDou. The same is true in defence technologies, after the Internet of Things (IoT) and space programmes. By 2022, China plans to launch its permanent orbital station called Tiangong. No one is in any doubt that the fight for traditional industries is over and that it is about dominating the most advanced technologies.

The aim of the trade war with China initiated by the US was, above all, to ensure equal access for US technology to the Chinese market and to protect copyright. China has had to engage in talks but they have not produced any real results in the area of new technologies. At the same time, the Middle Kingdom wants to renew the former Silk Road from Asia to Europe with the Belt and Road Initiative (BRI). The challenge for Europe is that this route should not carry goods in just one direction – from East to West. Hence, the enthusiasm for this initiative will probably weaken even more in the light of the crisis. A few days ago, Donald Trump, who has not spoken to President Xi since March, banned students and scientists of selected technical specialisations from coming to the USA for work and research. It is already an open Cold War.
The Cold War and pandemic will change the global economic order

The logic of social dynamics (dissatisfaction with the recession), economic dynamics (threat of losing technological primacy) and political dynamics (presidential elections) inevitably leads to the conclusion that the American-Chinese Cold War may intensify this year. Until now, the Republican Party has been a hawk against China. Due to the enormous cost of the coronavirus pandemic, anti-Chinese rhetoric has become even more acute. Recently, however, with the realisation that America is threatened with a real loss of leadership in new technologies and that the American worker has been competing with the Chinese for 30 years, resulting in low wages and now unemployment, the Democratic Party is also changing its narrative towards China. This means that a consensus is being formed in America that the Cold War is inevitable in order to safeguard the economic and geostrategic interests of the US. Its intensity may vary over decades – periods of high tension may alternate with years of relaxation – but as long as there is no new balance in global economic governance that satisfies both countries, this rivalry will have a major impact on the world in this century.

From the Polish perspective, the new Cold War also brings threats. International destabilisation is of course a risk for the European economy which we are a part of, already weakened in the short term and structurally, and therefore for our exports and investments. It is also an increase in security risks. The answer to these challenges should be to strengthen transatlantic relations and investment in new technologies, to further improve infrastructure, health and education, and to attract as much investment as possible from US and European companies that are planning to move their production or service centres from Asia. The barrier to strengthening transatlantic relations, which seems to be a natural way out of the crisis, is weak political relations, as exemplified by the G7 summit that has just been cancelled. Europe has not yet decided on what strategy to adopt in the face of the new Cold War, but it will inevitably have to make concrete decisions about technological standards, the movement of production and trade agreements. It is worthwhile for the Old Continent, which is losing the technology race, to bet not only on the Green Deal and general digitisation, but to redefine the key industries and advanced technologies in which it wants to be a world leader. The technological “arms race” has already begun, and we need to take part in it in order to maintain competitiveness and economic security in Europe. Europe can also play a role as a stabilising force in the current global Second Cold War. The basis of economic governance after World War II was the system built during the Bretton Woods conference, which took place 15 years after the outbreak of the Great Depression in 1944. Given the scale of the challenges and tensions in the current global financial and economic system, it may be worth it today to sit down and reach a new consensus on the model of global development before it creates itself after the years of chaos that is now ongoing.

The article expresses the views of the author only and not the institution where he is employed.


Paweł Borys
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