Ian Welsh

Right, with the ban on Huawei using chips made with American manufacturing equipment (one of the US’s last few places of absolute advantage), the bans on TikTok, Tencent, and WeChat, the attempt to convince other countries to not use Huawei 5G, and the arrest of the Huawei founder’s daughter for doing business with Iran, along with the US seizing a freighter full of medical supplies for Iran, I think we can state that the world is moving towards a second cold war.

The US pivoted to China containment under Obama, not Trump — though Trump has been far more aggressive. The Trans-Pacific Partnership (TPP) was created as a way of marshaling Asia-Pacific countries into an anti-Chinese trade area. While Trump didn’t go ahead with it, he’s pushed hard against China in other ways.

When the US asked Canada to seize the daughter of Huawei’s founder, for example, it destroyed Canada-China relations: Canada was forced to take sides, and the Chinese were furious. The USMC (the NAFTA replacement) included a clause that says signees cannot make new trade deals with non-free states if the others object: This was aimed squarely at China.

Britain had originally intended to use Huawei 5G, but after leaving the EU, reversed course.

It’s important to understand that the anti-China pivot is bipartisan, as are the sanctions against Huawei and others.

The United States has a number of advantages and it’s using all of them aggressively. First, the fact that it is the center of the financial universe, to the point that movement of funds often goes through the US even when the transaction doesn’t involve them, is a major one. The US has made its financial laws extra-territorial, in effect. If a transaction goes through the US at all, even if no one involved in the transaction is American-related, the US claims jurisdiction. (Famously, this was used by the US to launch an investigation in the World Cup, in which the US is a trivial player, because a bribe went through the US on its way somewhere else.)

This often happens unintentionally, and firms that do business with the US at all are thus often unwilling to do business with anyone whom the US has sanctioned.

US naval power and military presence is also important, with their ability to interdict the Strait of Malacca. China imports about 70 percent of their oil, and 80 percent goes thru the Malacca strait and the US can shut it down any time they want. This is true of much else that China imports or exports.

The Belt and Road Initiative is, in part, meant to cut out the US ability to use its navy to hurt China; it creates alternate land routes, including one right across the continent to Europe, and it includes pipelines. The alliance with Russia, fraught as it is, is also about reducing dependence on Malacca.

Indeed, even the ability to protect and control trade to nearby neighbours is in doubt, which is why China built artificial islands in the South China Sea.

Fundamentally, the post-WWII trade, financial, and military order is an American creation, with a European assist.

When the US let China into the WTO, they let the power most likely to overtake them inside, as it were, the house. They did so for the simplest of all reasons: greed. Oh, sure, there was talk of capitalism meaning democracy and all that, but basically, offshoring and outsourcing to China made a lot of money for a lot of corporations and rich people, and that’s why they allowed China in.

The US deliberately sped up the transfer of industry to China as a way of making more money and undercutting wages at home. China knew the deal it was offering; they understood Americans, and they were patient.

So now, China is a larger manufacturing country than the US and, by some measures, has a larger economy.

China is a threat.

China is seen as a threat and this perception is, again, bipartisan.

There is no reason to expect this to change. China is not going to buckle under to the US, like some third-world nation or a vassal like Canada. They now have a de-facto alliance with Russia. China has nuclear weapons, and Russia is not going to allow China to be taken out with a nuclear first strike (without China, they’d have to give the US anything it wants, and they know it.)

The US will keep using its financial and technological power to weaken and isolate China.

So what will happen is an acceleration of the creation of a banking system that routes entirely around the United States and which does not use the US dollar, but instead the Yuan. Countries will be folded into this, as part of the Belt and Road Initiative. Even core US allies may have little choice: South Korea does twice as much business with China as with the US, for example, and Australia is extremely dependent on China.

For many countries, China clearly offers the better deal: they provide far more cheap loans than the US, they provide development, and their goods and services are suitable for both developed and developing nations. Nor do they natter on about “human rights” while they bomb Yemen.

For others, China will be unacceptable.

This leads to a world with two trade areas, not a free trade world. It leads to an end of the dollar as the world reserve currency. It leads to a continued arms race. It may well lead to a breaking of world IP into two sets: one American lead, one China lead. (There’s no particular reason for China to respect US IP if the US refuses to let them use it.)

This is a recipe for Cold War 2.0.

This time, however, understand that the US is facing an “enemy” with more population and more industry than it, not a nation devastated by World War with less population. Likewise, China and Russia combined have more land and more resources, while Europe is not a sure American ally, though Britain, absent EU support, will fall completely into US vassal status.

This is especially true as the US is experiencing late-imperial rot. It is nearly completely unable to handle its internal affairs, and its social cohesion is breaking down to the point where it may soon become a failed state.

Many American supporters of Cold War 2.0 are trying to use China as the external enemy to rally Americans around and, by closing China off from the US, to drive manufacturing back to the US, or at least to its firm allies (like Taiwan).

Bringing manufacturing back is smart, it should never have been sent overseas, but American elites are confused: Their primary enemy isn’t China, their primary enemy is themselves. They are responsible for the US decline and China could not have risen so fast if they were not so corrupt, greedy, and short-sighted.

It’s a very stupid world we’re moving into, but some of what is going to happen has to happen. It’s not good that the US has the ability to sanction anyone it wants to. Those medical supplies seized off that freighter? Covid-19 medicines.

Power which is routinely abused, as the US has abused its financial and military power, is eventually removed. The US is accelerating this progress as fast as it can.

The ban on Huawei using chips manufactured with US tech will hurt, for example. But it’s time limited: China isn’t some backwards third-world country. They will advance their own chip manufacturing and erase the deficit.

By fighting the dragon, the US is making a rival an enemy.

Cold War 2.0 is coming and essentially inevitable, because it is something the leadership of both countries either wants or is willing to accept. The only monkey wrench in this are the effects of climate change and ecological collapse. More on them later.