The New Cold War between the US and China plus Russia: ‘Geopolitics is back, but it’s in the economy’

By Robert H. Wade - 18 July 2022
The New Cold War between the US and China plus Russia: ‘Geopolitics is back, but it’s in the economy’

China’s emergence as a powerful challenger to the US’s and the west’s well-crystallized position atop the global hierarchy poses the question of how to co-exist peacefully. This essay discusses several economic sectors where the two sides are acting aggressively towards each other; in trade, capital, high tech, and cyberwar. It argues that the geopolitical class of the US and the west must go against the drift of popular opinion and strengthen interaction and investment in the ‘battle ground’ states of the global South, while simultaneously sustaining a closer negotiating position with China and avoiding a self-fulfilling prophecy of war. It concludes with a discussion of appropriate western steps to peaceful co-existence, and the prospects for hot war.

Policy Recommendations

  • Recognize that a ‘syndrome of mistrust’ has settled into relations between the US together with some of its allies and China, such that the behavior of each side seems to confirm the negative expectations of the other. While President Xi talks of ‘engagement and struggle’, many in the US and parts of the west talk of ‘de-coupling’, at least in areas directly related to geopolitical and high-tech competition; and look forward to a world of regional blocs, or perhaps democracies against authoritarians. This makes some but limited sense, limited in particular because it would hobble the west’s access to Asia, the most populous and dynamic part of the world.

  • Economic battles are occurring in merchandise trade, capital markets, high-tech, digital standards and cyberspace, with deep impacts on national security. Western states have remained unprepared to play this new geo-economic game. Now that economic and national security issues overlap ever more closely the US and other western countries have to ensure consistency between the two domains; economic officials and national security officials have to sit at the same table to formulate an integrated strategy, together with representatives from the private sector. This being said, we have to recognize that so far neither the US, the EU nor China have shown themselves strong enough to force others to choose an exclusive bloc. Some countries are doing well by sustaining dense ties with all.

  • The economic policy framework of western countries should give less weight than in the past to globalization and least-cost production in far-flung locations, and more weight to production and employment at home or near home. Which means they should abandon the still-influential conviction that the state has no role in imparting ‘directional thrust’ to the market, and learn to compete with China’s state-driven all-of-nation approach. That requires, among other things, much more patient, long-term finance.

  • Granting China and some other big developing countries a share in global economic governance commensurate with their economic weight – which requires the west to reduce its long-standing over-representation – would make a small but symbolically significant step to improve global cooperation.  Efforts to suppress China’s influence in international rule making will backfire, by encouraging it to build alternatives.

  • States of the Indo-Pacific can leverage broad-spectrum competition between China and western states into more investment from both; in particular, physical infrastructure investment from the west (scandalously underprovided in the past four decades) to match China’s Belt Road Initiative.

  • The current state of cyberwar means we must be much more careful about connecting critical infrastructure to the internet. Some critical systems have to be ‘air-gaped’, not connected to the internet, with analogue rather than digital controls.


Image: Matteo X via Flickr (CC BY 2.0)