Sunday Times (Sri Lanka)

The Sino-American cold war’s collateral damage

- By Minxin Pei, exclusive to the Sunday Times in Sri Lanka

CLAREMONT, CALIFORNIA – The escalating trade feud between the United States and China is increasing­ly viewed as the opening campaign of a new cold war. But this clash of titans, should it continue to escalate, will cost both parties dearly, to the point that even the winner ( more likely to be the US) would probably find its victory Pyrrhic.

Yet it is the rest of the world that would pay the steepest price. In fact, despite the low probabilit­y of a direct military clash between the US and China, a new cold war would undoubtedl­y produce collateral damage so far- reaching and severe that the very future of humanity could be jeopardise­d.

Already, bilateral tensions are contributi­ng to an economic decoupling that is reverberat­ing across the global economy. If the end of the Cold War in 1991 launched the golden age of global economic integratio­n, the beginning of the next cold war between the world’s two largest economies will undoubtedl­y produce division and fragmentat­ion.

It is easy to imagine a world divided into two trade blocs, each centered on a superpower. Trade within the blocs could continue, or even flourish, but there would be few links, if any, between them.

The global financial system would also unravel. President Donald Trump’s administra­tion has shown just how easy it is for the US to hurt its foes ( such as Iran) by using sanctions to deny them access to the dollar- denominate­d internatio­nal payment system. Given this, America’s strategic adversarie­s, China and Russia – and even its ally, the European Union – are trying to establish alternativ­e payment systems to protect themselves in the future.

Such economic fragmentat­ion, together with the deeper geopolitic­al tensions that a cold war implies, would devastate the world’s technologi­cal landscape. Restrictio­ns on technology transfers and linkages, often justified by national security concerns, would give rise to competing and incompatib­le standards. The Internet would splinter into competing domains. Innovation would suffer, resulting in higher costs, slower adoption, and inferior products.

But the first area to be struck by deep fragmentat­ion would be global supply chains. To avoid being hit by US tariffs, companies manufactur­ing or assembling US- bound goods in China would be forced to move their production facilities to other countries, most likely in South and Southeast Asia.

In the short term, such a wave of relocation­s – China stands at the center of global manufactur­ing chains – would be hugely disruptive. The fragmented supply chains that emerge would be much less efficient, as no single country can match China in terms of infrastruc­ture, the industrial base, or the size and skill of the labour force.

Yet, if the US and China actually decided to engage in a prolonged cold war, the economic consequenc­es – however dire – would be dwarfed by another consequenc­e: a lack of sufficient­ly strong action to combat climate change.

As it stands, China produces over nine billion metric tonnes of carbon dioxide per year, making it the world’s largest emitter. The US comes in a distant second, emitting about five billion metric tons annually. If these two countries, which together are responsibl­e for 38% of annual global CO2 emissions, are unable to find common ground on climate action, it is all but guaranteed that humanity will miss its last chance to prevent catastroph­ic global warming.

A Sino- American cold war would make such an outcome far more likely. The US would insist that China drasticall­y cut its emissions, because it is the world’s number one polluter in absolute terms. China would counter that the US bears more responsibi­lity for climate change, in both cumulative and per capita terms. Locked in geopolitic­al competitio­n, neither country would be willing to budge. Internatio­nal climate negotiatio­ns, already monumental­ly challengin­g, would end in deadlock. Even if other countries did agree on measures, the impact would be insufficie­nt without the US and China on board.

The one hope humanity would have would lie in technologi­cal inno- vation. Yet such innovation – including the rapid progress in renewable energy over the last decade – has depended crucially on the relatively free flow of technologi­es across borders, not to mention China’s unique ability to scale up production and reduce costs quickly.

Amid cold war- fuelled economic fragmentat­ion – especially the aforementi­oned restrictio­ns on trade and technology transfers – urgently- needed breakthrou­ghs would become much more difficult to achieve. With that, a technologi­cal solution for climate change, already a long shot, would effectivel­y become a chimera. And the greatest existentia­l threat humanity faces would be realised.

It is not too late for the US and China to change course. The problem is that, in deciding whether to do so, Trump and his Chinese counterpar­t, Xi Jinping, will probably focus primarily, if not exclusivel­y, on national interests and personal political calculatio­ns. This is short- sighted. Before these two leaders irreversib­ly doom their two countries to spend the next decades locked in a devastatin­g and avoidable conflict, they should carefully consider what that would mean not just for the US and China, but for the entire world.

( Minxin Pei is a professor of government at Claremont McKenna College and the author of China’s Crony Capitalism.)

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