Is Cold War 2.0 Coming after the US-China Trade War?

  • A former Trump administration official has warned about a Cold War between the US and China. Over the last two years, the US-China trade war has been in the headlines.
  • Earlier this year, the two countries signed phase one of the trade deal. We’ll have to see how many of the commitments are met this year.

Cold War 2.0

It has been 30 years since the Cold War between the US and the Soviet Union ended. However, the US-China trade war, which started in 2018, is similar to the Cold War. On the surface, the issue looks like trade frictions between the world’s two largest economies. However, there are other key angles. The US targeted Chinese giants like Huawei. As a result, the world was split between choosing China or the US. The US also targeted China’s “Made in China 2025” program. China aims to leapfrog the US in advanced manufacturing.

US-China trade war

In 2018, I noted that the US-China trade war looked more like Cold War 2.0. There’s bound to be friction between an established global power and a rapidly emerging power. The US-China trade war triggered a sell-off in US equity markets. However, the Dow Jones Index (NYSEARCA:DIA) and the S&P 500 (NYSEARCA:SPY) rose to record highs last year. The de-escalation in the US-China trade war helped the markets among other factors. Earlier this year, the two countries signed phase one of the trade deal. While the agreement is incrementally positive, the trade deal might not help prevent a Cold War.

Former Trump trade official on Cold War

Clete Willems, an ex-White House trade negotiator, sees a Cold War on the horizon. He said, “The reality is that tensions between the United States and China are rising considerably at the moment.” He also said, “I know people get uncomfortable with the terminology, but I do think we have to be honest and call this what it is and this is the start of a new Cold War and if we’re not careful, things could get much, much worse.”

US-China ties in a post-COVID-19 world?

Apart from the trade and tech war, several flashpoints between the world’s two biggest economies point towards a Cold War. The US sold military hardware to Taiwan, which caused friction with China. The US also criticized how China handled the protests in Hong Kong. China’s alleged mistreatment of minority Uighur Muslims invited US and global ire.

There have been frequent skirmishes between the US and China over the South China Sea. The US also spoke against China’s Belt and Road Initiative. China has been expanding its reach beyond its borders. Over the last two years, some Chinese officials have said that US actions show a Cold War mentality.

President Trump labeled the coronavirus as the “Chinese virus,” which didn’t sit well with China. Some US officials said that COVID-19 might have originated in a Chinese lab.

Trade war versus the Cold War

During the US-China trade war, the Trump administration didn’t have much support from other countries. Now, there’s palpable anger towards China in many countries. Several global companies want to shift their operations from China after the pandemic settles down. In the past, global power shifts have seldom been without turbulence. A Cold War looks like a new reality in this decade.