A new Cold War between China and the US is not inevitable
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In autumn 1959, the Soviet leader, Nikita Khrushchev, visited the United States to meet President Eisenhower. Their communique noted that “these discussions have been useful in clarifying each other’s position” and hoped for “a better understanding”.
There was little of substance. Within a year, Gary Powers was shot down. Within another, the Berlin Wall went up. Within two, Khrushchev and Kennedy faced off over Cuba. It took another decade to find their way to détente.
Last week’s summit between presidents Biden and Xi in San Francisco has echoes of that 1959 meeting. Their statement was similar in tone and brevity. Of course, history need not repeat itself. Indeed, if we learn its lessons properly, it should not.
The Chinese balloon shot down over the US last spring was hardly Powers’ U-2, but so fragile was the relationship that a meeting scheduled between the US Secretary of State, Anthony Blinken, and his Chinese counterpart, Yang Jiechi, was shelved.
I met Mr Yang frequently when I was the UK’s National Security Adviser. I also met my Russian counterpart in the aftermath of the Salisbury attack. Diplomacy isn’t just about talking to our friends. It is even more vital to maintain channels of communication in tense times. It shouldn’t take a Cuban Missile Crisis for Beijing and Washington to negotiate their own détente, albeit “with Chinese characteristics”.
Both appear to recognise this. Blinken talks of “collaborating where we can, competing with confidence, contesting where we must”. That is a good description of the British interest, too. So I hope that our new Foreign Secretary, Lord Cameron, will visit China soon. Who better to explain that it was China’s malign behaviour that brought the “golden era” to an end?
Mr Xi also spoke of avoiding conflict and reassured the Americans that even his more assertive China would not seek to supplant them in the global order, while cautioning that nor should they seek to suppress China’s rise.
Taiwan is the potential flashpoint. So far, China has played this long, confident in Taiwan’s eventual inevitable re-absorption. Although Mr Xi seems determined that it should happen on his watch, China is not yet in a position to invade and we would see it coming. Amphibious operations are high-risk, Taiwan’s mountainous topography is forbidding, and, in the satellite era, developing let alone deploying the combined forces necessary for such an assault could not be done in secret.
The more immediate risk is of a confrontation between the US and Chinese navies nearby. The US administration is mandated to provide Taiwan with the wherewithal to defend itself against a Chinese attack and thus to deter it. The US and Chinese fleets already operate in close proximity and American commanders often report aggressive, even reckless, Chinese behaviour.
Were China to impose a blockade on Taiwan, a tactical incident could spark a general confrontation. Another Cuban Missile Crisis? Not nuclear, so not the acute danger the world faced then, but any military stand-off between the two superpowers would be a perilous moment. The resumption of military communications agreed in San Francisco is thus an important damping mechanism.
Were this already Cold War II, as many in Washington assert, China would be supplying weapons to their “no limits” ally Russia in Ukraine and meddling against the American ally Israel in Gaza. Instead, China has offered Putin political support and bought Russian oil at bargain basement prices, but provided none of the weaponry they desperately need. And China has stayed out of the Gaza crisis, even as the US has deployed aircraft carriers to deter China’s friend Iran and its proxies.
Restraint has enhanced China’s competitive position versus the US among the new non-aligned. Nevertheless, it also offers an opportunity to build on the San Francisco meeting and develop the musculature of détente.
The geo-economic picture is almost as complex as the geo-political. Aside from sensitive sectors, notably defence and tech, where Western allies are actively decoupling, China remains a massive market and vital source of supply. It is the biggest export market for US goods and services outside NAFTA and the biggest source of imports altogether.
But business is finding it harder to operate: regulatory uncertainty, market access barriers, intellectual property theft, forced technology transfer, capricious data and cybersecurity regimes, export controls, sanctions and detentions.
China’s anaemic growth since lifting the zero-Covid lockdown is a reminder that, if a government prioritises control over prosperity, that is exactly what they will get. And as their ageing and declining population drives up labour costs and savings rates, even Chinese companies are off-shoring production to neighbours like Vietnam and Indonesia.
While US investment into China has continued to rise, Chinese investment into the US peaked in 2019 and has fallen by over a quarter since, even while the American share of global investment has accumulated to over half the world’s market capitalisation. Having spent two decades watching anxiously in the rear-view mirror as the Chinese economy powered into view, since the pandemic, the US has pulled further ahead.
A gradual improvement in the US-China relationship within the Blinken framework might permit the US to ease tariffs and China to improve market access. More likely, however, fractious strategic competition will continue, punctuated by periodic crises but without a major breakthrough or breakdown.
That breakdown remains possible, severely disrupting not just bilateral but global trade and investment. Like governments, business must be ready to respond: planning for volatility, aligning their and investor risk appetites, building resilience into operations and supply chains, and developing the leadership capable of handling geopolitical turbulence while also wrestling with climate and demographic change, the tech revolution and shifting economic centres of gravity.
The world is not more dangerous than ever. But it is more complex. Countries and businesses with the skilful and agile leadership able to navigate that complexity will prosper. Those without will fall behind. For voters, boards and investors, that is the crucial question of our time.
Lord Sedwill is chair of Rothschild & Co Geopolitical Advisory, and a former Cabinet Secretary and National Security Adviser
