Cold War II; a sequel or something new?

Devolving US-China relations have seen experts declare that the Second Cold War is upon us. Having won the first Cold War, American hegemony has since declined since its ‘unipolar moment’, however only 30 years later is it reasonable to suggest that the West has learnt nothing and finds itself in an identical dynamic?

For Australia, who have firmly committed to ‘Team West’, these questions bear significant consequences. As we become further wedged between a rock-our major security partner-and a hard place-our major trading partner-a sense of perspective on the years to come is important.

While terming the current situation a ‘Second Cold War’ grabs headlines, it ignores key differences between the US-Soviet and US-China competition, particularly as it relates to the economic implications. Ignorance of these differences results in the maintenance of outdated Cold War ideas. Those leading and participating in national security apparatuses are no longer ‘Cold War warriors’ — so there needs to be a clear understanding of what the new term means. To assume the situation the West faces now is analogous to 40 years ago sets a path for misunderstanding and failure. Doing so would furthermore suggest that there is no escaping a protracted stand-off, unless either the US or China collapse without warning;as the Soviet Union did in 1991.

FROM TWO FRONTS TO ONE

The first Cold War was fought on two distinct, but tightly related fronts: politics and economics. After the allied victory in the Second World War, the US and Soviet Union stood as superpowers representing fundamentally different philosophies. The US had become an industrial powerhouse and champion of capitalism, with government legitimacy through a strong history of representative democracy. Alternately the Soviet Union had shown the brute power of a centrally planned socialist economy, with government legitimacy stemming directly from the 1917 people’s revolution. Both ideologies were universal, in that they believed their conceptions of society applied to all nations, necessarily meant that the Cold War could not be resolved philosophically until there was a loser. The US subsequently spent the Cold War attempting to demonstrate the supremacy of democracy and capitalism, while also seeking to smear or destroy communism. In this process the world split in two, the Eastern bloc operating a completely different economic and political model to the West. While there were elements of overlap, overwhelmingly the two competing ideologies operated separate structures until the collapse of the Soviet Union.

Francis Fukuyama famously declared the end of history in 1989, arguing that liberal, capitalist democracies had achieved supreme victory over all other competing structures. In the political climate of 2021 Fukuyama’s political assessment appears to have fallen short. While the number of democracies has risen by nearly 50% since 1990, the continued strength of authoritarian countries such as Russia and China demonstrate the fight is not yet over. In theory both Putin’s Russia and Xi’s China declare themselves ‘democratic’, however in practice they operate in a manner more akin to the dictatorships of North Korea and Saudi Arabia.

In contrast, Fukuyama’s prediction of capitalist victory appears valid. Prior to the official end of the Cold War, the two major communist superpowers had already begun a painful transition to a market-based economy. In Russia this was Gorbachev’s perestroika and glasnost policies of 1986 which were desperate attempts to introduce market-mechanisms in the face of devastating stagflation. Similarly, in China Deng Xiaoping had taken rein of a decrepit and inefficient economy that he was desperately attempting to revive with free-market initiatives. So effective were Deng’s capitalist reforms that in 2021 China currently finds itself a capitalist economic superpower — though the official economic philosophy is ‘socialism with chinese characteristics’.

Philosophically speaking history has not ended, but it is also not repeating itself. The US-Soviet Cold War was fought on both political and economic fronts. The ascension of capitalism as the victorious economic model thus creates a new set of circumstances regarding current US-China tensions. With the US inextricably intertwined in a global economy that also contains its current competitor, China, we find ourselves in a situation markedly different to that of the first Cold War.

IT’S THE ECONOMY STUPID

The concurrent operation of competing economic models that dominated the second half of the 20thcentury is no more. Whether the spread of capitalism should be viewed as a consequence of altruistic globalist co-operation or self-interested neo-conservative imperialism is largely irrelevant. The uptake in free-market practices over the last 50 years has mirrored unprecedented growth in the economic prosperity of nearly all societies, and relegated communist practices to irrelevancy. Even the most socialist economies of Scandinavia demonstrate a far closer likeness to Adam Smith’s vision than they do Marx’s. Importantly, such prosperity has not been limited to only democratic states. The rapid ascension of the ‘Asian Tigers’ during, and after, the Cold War proved that the perceived incompatibility of authoritarianism and capitalism was a lie — you could indeed have your cake and eat it.

As it pertains to a second Cold War, the US and China are coupled so firmly into the global economy that the prospect for disruption seems unlikely. As states have modelled their economy towards relative advantage, that is the areas in which they are most efficient at producing, a symbiotic relationship has developed. The United States, with its high wages and skilled workforce, has pursued a service economy with emphasis on high-tech industries such as computing, aerospace and telecommunications. Alternately China, with low wages and large population, has pursued a manufacturing economy with emphasis on large-output industries such as textiles, circuitry and consumer goods. Pursuing relative advantage is excellent for economic efficiency and growth, however from a security standpoint it creates dependence on a country which may also be your biggest strategic competitor.

This dependence was absent in the Cold War. Both the US and Soviet Union, consequent of domestic manufacturing necessitated by the second World War, were able to produce the full gamut of economic products without a critical reliance on their major competitor. Such is not the case now; neither the US nor China could survive economically without the other.

The collapse of China, if it occurred in an analogous way to the Soviet Union, would leave a gaping hole in the US economy. Hundreds of billions in goods would go unsupplied, the manufacture of key components for products would halt, global financial markets would shrivel, billions worth of debt would go unpaid — and this would be subject not just to the US but to any country with strong economic ties to China (Australia included). Likewise, the collapse of the US would decimate the demand for Chinese exports, billions invested in US companies would vanish and the ability to import high-tech assets disappear. Indeed, minor events such as the recent US-China trade war, and subsequent semiconductor shortage, has highlighted the vulnerability of countries to the economic movements of others.

COLD WAR OR NEW WAR?

As a result of this economic integration the US and China are playing by a new Cold War playbook. Now reliant on each other for continued economic success, or at least until domestic manufacturing can be self-sustaining, the collapse of either state is not so appealing. Such is reflected in the rhetoric of Joe Biden and Xi Jinping, who recently called for increased co-operation and conflict avoidance. Xi Jinping’s desire for ‘mutual respect’ and ‘win-win co-operation’ is one that would likely have not been shared by any Soviet president during the Cold War. Even the most antagonistic actions of either country, whether US carriers in Taiwanese waters or military installations in the South China Sea, are leagues away from the severity of events such as the Cuban missile crisis.

Undoubtedly there is great power competition afoot, but it has only a partial resemblance to the Cold War. The Cold War was an overt duel between communism and capitalism, democracy and authoritarianism, fought between two powers who operated in an environment largely independent from each other. With the world still in disarray following the Second World War both the US and Soviet Union were attempting to establish a new global paradigm, based on incompatible economic and political ideologies. Thus, the fall of the Soviet Union paved the way for a global architecture that demanded free markets and preferred elected officials.

Globalised trade and financial integration have only strengthened since 1991, entrenching the supremacy of capitalism and bringing states further together. Subsequently the US and China are both key players in the same game, the removal of either resulting in a net negative for everyone. From a security perspective this somewhat mirrors the concept of mutually assured destruction (M.A.D) typically applied to nuclear weapons, however now in economic terms. Unlike M.A.D, which is an all or nothing approach, economic disputes can, and do, occur frequently without leading to absolute destruction. While the exchange of economic ‘shots across the bow’ by Washington and Beijing frequently lead to predictions of a kinetic future, the lack of these actions would indicate that the binding of economic systems has frequently forced both countries back from such courses of action.

The relationship between the US and China, however stressed it may appear, will likely continue to be far closer than that of any competing great power before them. Constant interactions at the highest levels of government ensures that a constant flow of political and dialogue occurs. Simultaneous to this is the continuing integration between two of the world’s largest economies, which appears to take notice of political hostilities but is far from dictated by them. While this doesn’t mean there will be no issues, it does mean that the environment of independent systems that occurred during the Cold War, due to the presence of overtly competing economic models in the West and East, is unlikely to re-emerge.

Overall, the claim that we are currently involved in a second Cold War is valid — but only if it is understood in a largely different context to the original. Current tensions mimic elements of a ‘cold’ approach to war — economic and political means are the weapons of choice with a kinetic approach strictly reserved for a worst-case scenario. Nonetheless, the absence of overt competition between two competing economic models fundamentally sees the US and China fighting for the same goal; continued financial prosperity. Political disagreements abound, however again there is no fundamental attempt by the US to discredit or destroy communism, nor is China actively pursuing the collapse of democratic institutes. These new circumstances foundationally change the modern strategic dynamic and subsequent strategic calculus, in stark comparison to the US-Soviet conflict of old.