In thinking and writing about a new cold war between the US and China, I have long been struck by the inclination of many serious observers to remain in denial over the possibility of such an occurrence. President Joe Biden, in a press conference after his November 14 meeting with Xi Jinping in Bali famously said, “I absolutely believe there need not be a new Cold War [with China]” — a point he reiterated today in stressing competition over conflict in his first public remarks following the February 11 destruction of a Chinese balloon after its intrusion into sovereign US airspace. For his part, Xi Jinping has also voiced objection to a Cold War mentality. With the notable exception of Henry Kissinger, many leading academics and security experts have been reluctant to embrace the cold war as a frame of reference for the conflict between the world’s two superpowers.
Yet there have been plenty of smoking guns suggesting the opposite conclusion. The great balloon fiasco is only the latest. Whatever you want to call it, there can be little debate the Sino-American conflict has deteriorated dramatically in the last five years — from trade war, to tech war, to rhetorical and policy-related clashes that could easily be dubbed the early skirmishes of a new cold war. Economists call this decoupling. Globalists dub it fragmentation. For political scientists, it fits the script of the Thucydides’ Trap. My point in this brief dispatch is to shift the debate away from splitting hairs over how to name this phase of the conflict toward a consideration of its implications.
That, in fact, is the focus of Chapter 6 in Accidental Conflict, entitled “Winning Cold Wars.” The essence of my argument: The United States is at risk of being far too smug in extrapolating its victory in Cold War 1.0 over the former Soviet Union into a comparable outcome in what could well be a Cold War 2.0 versus China. That is particularly true in terms in the economic comparisons between the two nations, long judged by cold war historians to have been decisive in the outcome of the earlier struggle between 1947 and 1991. Not only was the Soviet economy considerably smaller and progressively weaker in the 44-year period of CW 1.0 than the Chinese economy is in CW 2.0, but the fundamentals of the US economy — notably, GDP growth, productivity, domestic saving, and the trade gap — are a good deal weaker in the current instance than was the case during the first cold war. In other words, the economic comparisons that were so decisive in working to America’s advantage in the first cold war, could well be a distinct disadvantage this time.
Of equal significance are the potential global ramifications of CW 2.0. When CW 1.0 ended, the former Soviet economy accounted for about 10% of world GDP on a purchasing power parity basis, less than half the 21% share of the US. By contrast, over the 2012-22 period, the Chinese economy accounted for nearly 17% of world GDP, well in excess of the Soviet share during CW 1.0 and about one percentage point larger than the 15.9% share of the US over the same period. Moreover, by 2022, according to the IMF, China’s PPP share of 18.6% was fully 3.1 percentage points larger than the US share of 15.5%.
The point of Chapter 6 in Accidental Conflict is to stress America’s false narrative in presuming what worked in the first cold war against the Soviet Union will be equally applicable in a second cold war against China. CW 2.0 pits the United States against the largest economy in the world on a PPP basis, far more consequential than the earlier conflict with a much smaller and progressively weakening Soviet adversary.
You can follow me on Twitter @SRoach_econ