The Great Economic War (GEW) (Part 11: Differences between Cold War 1.0 and 2.0)
Phuah Eng Chye (17 December 2022)
Many think a new Cold War has begun. On surface, the familiar cast of players and geographical boundaries seems to justify the comparison. US and Europe on one side, Russia and China on the other. There geography is also familiar albeit with some differences. “The Soviet Union – officially titled the Union of Soviet Socialist Republics (USSR) – was formed 100 years ago in 1922 and was dissolved in 1991 almost 70 years later. At its height it was home to 15 republics, over 286 million people, and stretched from the Pacific Ocean to Ukraine, with virtual control and influence in countries as far west as East Germany”. Russia today is a shadow of the former USSR in terms of population and economic size. The Warsaw Pact countries are now mostly aligned with the West. The dynamics of the Russia-China relationship has also changed. While Russia was previously the lead, some disparage Russia as a junior partner to China, which is now considered the most formidable rival that the US has ever faced. The geopolitical composition of the West is also changed with European countries mostly coalesced into the EU while Japan, South Korea and Taiwan have moved up the economic ranks. However, it is not evident that Cold War 2.0 is the right analogy to describe where the current geopolitical conflict is headed.
Cold War 1.0 – Background and features
A useful starting point is to review the background and features of Cold War 1.0. The Cold War is “generally considered to span from the announcement of the Truman Doctrine on 12 March 1947 to the dissolution of the Soviet Union on 26 December 1991”. In the first phase of the Cold War, “the United States and its allies created the NATO military alliance in 1949 in apprehension of a Soviet attack”. In response, the Soviet Union formed the Warsaw Pact in 1955. “Major crises of this phase included the 1948–1949 Berlin Blockade, the 1927–1949 Chinese Civil War, the 1950–1953 Korean War, the 1956 Hungarian Revolution, the 1956 Suez Crisis, the Berlin Crisis of 1961 and the 1962 Cuban Missile Crisis. The US and the USSR competed for influence in Latin America, the Middle East, and the decolonizing states of Africa, Asia, and Oceania”.
“Following the Cuban Missile Crisis, a new phase began that saw the Sino-Soviet split between China and the Soviet Union…The USSR invaded Czechoslovakia to suppress the 1968 Prague Spring, while the US experienced internal turmoil from the civil rights movement and opposition to the Vietnam War. In the 1960s–1970s…Movements…for nuclear disarmament…with large anti-war protests. By the 1970s, both sides had started making allowances for peace and security, ushering in a period of détente that saw the Strategic Arms Limitation Talks and the US opening relations with the People’s Republic of China as a strategic counterweight to the USSR. A number of self-proclaimed Marxist governments were formed in the second half of the 1970s in the Third World, including Angola, Mozambique, Ethiopia, Cambodia, Afghanistan and Nicaragua. Détente collapsed at the end of the decade with the beginning of the Soviet–Afghan War in 1979”. “The early 1980s was another period of elevated tension. The United States increased diplomatic, military, and economic pressures on the Soviet Union, at a time when it was already suffering from economic stagnation. In the mid-1980s, the new Soviet leader Mikhail Gorbachev introduced the liberalizing reforms of glasnost (openness, 1985) and perestroika (reorganization, 1987) and ended Soviet involvement in Afghanistan in 1989. Pressures for national sovereignty grew stronger in Eastern Europe, and Gorbachev refused to militarily support their governments any longer. In 1989, the fall of the Iron Curtain after the Pan-European Picnic and a peaceful wave of revolutions overthrew almost all communist governments of the Eastern Bloc. The Communist Party of the Soviet Union itself lost control in the Soviet Union and was banned following an abortive coup attempt in August 1991. This in turn led to the formal dissolution of the USSR in December 1991, the declaration of independence of its constituent republics and the collapse of communist governments across much of Africa and Asia. The United States was left as the world’s sole superpower” .
Anatol Lieven, Sarang Shidore and Marcus Stanley notes despite “pressure to adopt a rollback strategy to overthrow Soviet control of Eastern Europe through local insurgencies backed by U.S. military power and risk conventional and nuclear war, the US opted to adopt George Kennan’s containment strategy of maintaining strong US and NATO defensive forces and engaging in intensive anti-communist propaganda while withholding military support to anti-communist revolts”. “It took four decades, but the Soviet bloc, Soviet communism, and the Soviet Union itself eventually collapsed from within as a result of the failures of its political and economic system. This occurred peacefully and without any risk of global war and nuclear annihilation”. The nations of Eastern Europe were spared the devastation of war and “were eventually to emerge again as free and independent democracies”.
One notable feature of Cold War 1.0 was the existence of two clearly-defined blocs divided by ideology. The Soviet Union controlled Eastern Europe and supported communist and socialist regimes, and revolutions around the world. The US formed a military alliance with Western Europe, and extended its umbrella to prevent many newly-independent economies from falling into communist hands. Another feature was the lack of a direct war. “The term cold war is used because there was no large-scale fighting directly between the two superpowers, but they each supported major regional conflicts known as proxy wars. The conflict was based around the ideological and geopolitical struggle for global influence by these two superpowers…Aside from the nuclear arsenal development and conventional military deployment, the struggle for dominance was expressed via indirect means such as psychological warfare, propaganda campaigns, espionage, far-reaching embargoes, rivalry at sports events and technological competitions such as the Space Race” .
Hal Brands points out “where we look back on the Cold War now and we think of it as the Long Peace…there was a 45-year principled agreement to compete short of war but not go into war, and that really, obviously, wasn’t how it worked. There were pervasive fears of global military conflict during the Cold War. The United States had to think very seriously about how to deter such a conflict or to fight it if it occurred, and so competition was really kind of a terrifying experience, especially given the presence of nuclear weapons in that competition and how new and terrifying they were”. He notes there was no consensus to engage in a cold war and no “acceptance, really, until the ’50s, maybe even the ’60s, that the United States was going to maintain this network of global military and diplomatic commitments”.
The resurrection of Cold War 2.0?
The victorious West pushed ahead with globalisation – advocating economic liberalisation, market reforms and adherence to Western governance norms. In pursuing profits and growth, Europe built a dependency on cheap energy from Russia while OECD built a global supply chain centred in China to tap its low labour costs, efficiencies and markets. The globalised peace dividend thus assisted Russia in rebuilding its economy and China’s transformation into the second largest economy in the world.
The West now appears to feel remorse that globalisation ended up causing them to become highly dependent on their rivals. Hal Brands notes the turning point in US-China relations “probably began about five years ago with the advent of the Trump presidency when we decided that the responsible stakeholder was more or less dead and we were moving into a period of competition. In a way, I think that realization kind of felt liberating for a lot of American policymakers. I mean, there was less concern about not rocking the boat in the US-China relationship, and there was freedom to do things that the United States might have wanted to do but felt constrained to do in economic competition or technological competition for a while”. Today, “the United States actually has a lot of the things that it needs to compete with China and Russia…We have a network of alliances that’s still probably our foremost tool in competition. We don’t have to build that from scratch. We don’t have to build an intelligence community from scratch, a national security state from scratch in the way that we did during the Cold War. So I think we’re better prepared in those ways”.
Some believe the geopolitical conflict could have been avoided. Events could have turned out differently if the West were less accommodative to China’s rise and more open to integrating Russia into the world economy when it was weak. Dmitry Orlov suggests that at the point of the Soviet Union collapse, the West should have immediately allowed Russia to join the World Trade Organization (WTO) which would swamped it “with cheap imports, destroying all of Russian industry and agriculture”; and “granted visa-free travel to the West” which would resulted in population outflow. Instead, the West provoked Russia on several fronts and forced it “to become militarily assertive”. The Western sanctions “were immensely helpful in helping jump-start a large-scale program of import replacement, rejuvenating both Russian industry and agriculture” while the threat to block Russia from SWIFT led to the adoption of conservative monetary policies.
In any case, the odds of a geopolitical conflagration appeared low when the US initially launched its decoupling. Trade tariffs were seen as a bargaining tool that would, after some time, be reversed before the consequences became severe. Instead, decoupling deepened and tensions ratcheted spectacularly after the Russian invasion of Ukraine. The GEW was an all-out economic blockade on Russia that plunged a knife into the heart of globalisation. Conflict continues to escalate as both sides gear up for fights across all fronts. In particular, the US appears keen to re-establish the Cold War boundaries to fragment the world into two distinct spheres of influence. These developments give rise to perceptions that the Cold War is being resurrected.
Differences between Cold War 1.0 and current geopolitical conflict
The differences between Cold War 1.0 and the current geopolitical conflict are too significant to be ignored. Timothy R. Heath, Kristen Gunness and Tristan Finazzo notes “the Cold War at its height in the 1960s may provide an archetype of the intense level of rivalry. During that period, both the Soviet Union and the United States cooperated very little, scarcely traded, and competed intensely by building powerful militaries, organizing geostrategic blocs of allies, and mobilizing popular support for costly competitive policies…The two countries depicted each other as existential threats and deployed large militaries on a persistent near-war footing. The two superpowers feuded over a complex array of issues ranging from ideology, influence in different parts of the world, and territorial disputes involving allies and partners. Both countries prioritized defense spending and built competing networks of allies, most notably that of NATO versus the Warsaw Pact. The rivalry also featured a high degree of multilateralization as proxy conflicts and parallel rivalries waxed and waned. Underscoring the connection between rivalry and conflict, the two countries came close to major war during the Cuban Missile Crisis, and their militaries clashed in proxy wars in Afghanistan, Korea, and Vietnam, among other places…In many ways, the paradigm for this geopolitical situation would be something akin to the early decades of the Cold War, in which two rival powers carried out political mobilization, oversaw major military buildups, developed alliances, feuded over a broad range of issues around the world, and competed for influence and partners. The United States and the Soviet Union also fought each other in proxy wars involving their allies and partners in many parts of the world but did not engage in direct conventional combat. A major difference, however, is the far narrower gap in national power between China and the United States than there was between the Soviet Union and the United States. The geographic scope of conflict could accordingly expand well beyond what it was during the Cold War. But, as in the Cold War case, the onset of hostilities would mark a critical turning point in the struggle for international primacy. Accordingly, the leadership of both countries would have a strong incentive to modify strategic goals and military strategies in light of the dramatic change in situation”.
It is clear the “losers” of Cold War 1.0 have learnt from past errors and have evolved their goals and strategies. In contrast, the “winners” appear frozen in time, relying on Cold War memories to stoke nationalism and rally allies. The Cold War provides a convenient historical roadmap for dealing with long-time adversaries. The drawback is it may trap the West into re-living old battles and narratives, and pursuing outdated goals and irrelevant strategies.
- Relevance of Cold War ideologies
In Cold War 1.0, the different sides were clearly divided by ideologies. In today’s geopolitical conflict, Neither China nor Russia espouses Communist ideologies to the world anymore. They are more interested in pursuing trade, investments and technology. It is the West that continually reminds everyone they are Communist countries. Sourabh Gupta argues “self-serving narratives, such as the United States and China being supposedly joined in a global contest between democracy and authoritarianism, do worse than just deflecting from the task at hand. They distort the forming of an accurate picture on the basis of which an even-handed understanding of that country’s present course can be gleaned. No country is lining up at Beijing’s doorstep to imbibe the secrets of its Leninist political model…If anything, the ideas contest globally is one between a liberal and an illiberal version of capitalism”.
Piotr Dutkiewicz explains “the Cold War was a systemic confrontation between diametrically opposite concepts of development, governance, and society-state relations. The current confrontation is not. Russia is a market economy. Different from many other market economies, certainly, but it is a state where profit, competition, accumulation and capital play a central role, as in any other capitalist country”. In addition, “the Cold War was a rather well structured confrontation where the rules were quite clear and both sides stuck to them as closely as they felt obliged. The master rule was the assurance of nuclear deterrence and the capacity of both sides to control their well-defined client states…Today’s confrontation has fewer rules, its main actors barely control the worldwide situation on the ground, many former clients are free agents, many of them pursuing their own agendas and often openly criticizing their old bosses. Those who possess nuclear weapons seem to be even less afraid of making known the limits of their accommodation of the wishes of the great powers.” Hence, “the Cold War was a state to state and block to block competition, a confrontation between the United States and the USSR and between NATO and the Warsaw Pact. Nowadays, states have lost much of their sovereignty over they own affairs and the polity has less power to deliver on its promises. Power, broadly defined, has becoming increasingly unchained from political control and capital so-called non-state actors are as capable as states in inflicting chaos and destruction. A lack of control over more general inter-state issues (such as migration) has made even the strongest global players much weaker. The erosion of international institutions and international law obviously follow”.
Piotr Dutkiewicz also points out “the Cold War was marked by confrontation and competition between the systems while now the roots of competition sprout from within the globalized market and confrontation accompanies deep interdependence. Politicians, policy makers, and societies are not ready to adjust to a situation where we would fight each other and cooperate at the same time as the global market demands from us. As a result, instead of two blocks we are dealing with increasing regionalization along economic lines, but also – increasingly – along roughly-defined cultural lines”. “The previous war was about two visions of the world; this one is about a revision of the consequences of the previous one within a completely different world. The Cold War played out in a rather well structured international environment (and still had terrible human costs), while the current confrontation is playing out amidst institutional, economic and social chaos. The goals for both sides are much less defined, and the means for achieving them more numerous…by comparison to the Cold War, Russia’s economic potential is much smaller while its military potential is as destructive as ever. One thing, however, has not changed between the Cold War and the current confrontation: deep mutual distrust. As such, the space for maneuver for both sides is smaller and the potential for a serious mistake much bigger. We are certainly not seeing a resurgence of the Cold War, and for this very reason I cannot help but conclude that the current Russia-West confrontation may prove to be even more dangerous”.
Beneath their ideological labels, there is actually a fair amount of role reversal. In Cold War 1.0, Russia and China actively supported worker revolutions around the world while the West promoted democracy and capitalism – i.e. free trade and market liberalisation. It could be said the West won Cold War 1.0 due to its superior economics. Today, Russia and China have copied many aspects of the Western system – setting up doppelganger multilateral institutions, laws, financial systems – and focused on economic development and market reform. Russia and China seek to expand trade and investment relationships under the umbrella of the Western-established multilateral order (IMF, WTO). In contrast, the West increasingly insists on conformance with liberal democratic ideologies. The West, particularly the US, has largely retreated on free trade and markets, and weaponised its policies by resorting to sanctions on countries and products that do not comply with its “values” on human and labour rights and climate change.
In any case, ideologies are no longer compelling nor relevant. First, due to the information effects of transparency and polarisation, modern societies tend to be split down the middle – even within communities and political parties. Second, team dynamics are overpowering the ideological debate; e.g. team US versus China is a more powerful force than communism vs democracy. Hence, the West’s attempts to recycle Cold War ideological narratives generally falls flat because it is out of place.
- Relevance of Cold War strategies
The West won Cold War 1.0 because its strategies were on-point and therefore effective. Sourabh Gupta notes that “in The Sources of Soviet Conduct, George F Kennan argued that the risks of confronting the Soviet Union and increasing the strains under which it could be forced to operate were manageable from the standpoint of American policy. This was because the United States’ stake in the country was, as he had observed in his Long Telegram, remarkably small. America had no investments to guard, no actual trade to lose, virtually no citizens to protect, few cultural contacts to preserve…Kennan’s exhortation that Soviet expansionism, advanced under the banner of communism, should be firmly contained at every critical strongpoint at which it encroached upon the interests of a peaceful and stable order. Further, the key global centers of industrial and military power must not be allowed to fall under rival control. Boxed within a limited geographic sphere of influence, the seeds of internal decay would in time find their outlet in either the break-up or the gradual mellowing of Soviet power. After all, Tsarist rule had collapsed not due to external pressure or nationalism at the periphery but due to disunity and revolt at the center”.
However, Sourabh Gupta points out “Kennan’s observation of the United States’ remarkably small stake in the erstwhile Soviet Union bears remarkably little parallel to China today. US exports to the mainland support over a million jobs, the stock of US foreign direct investment in China exceeds US$100 billion, annual overall bilateral trade exceeds half a trillion dollars and American investors hold more than $1 trillion of Chinese equities. In the years ahead, these stakes will magnify as China becomes the largest economy in the world by 2030 and hosts the largest domestic consumption market by 2040”. “Kennan’s proposed strategy of containment was premised on the United States’ remaining the dominant global economic power…to exert collective discipline among the key Western centers of industrial and military power in their dealings with Moscow. In China, by contrast, it will face a peer that is without precedent in America’s brief but illustrious history – one whose economic size, and therefore the material capabilities at the government’s disposal, will vastly outstrip those of the United States as far as the eye can see. This will, in turn, test a core strategic proposition on which US primacy has rested since its international rise as a colossus at the turn of the 20th century: that America could meet the strategic challenge of the day from a position of national strength”.
Sourabh Gupta points out “the currency of competition in the age of the China Challenge will primarily be economic and technological, and less military or ideological. Military contestation is typically zero-sum; economic exchange is inherently positive-sum. As China’s economic size outstrips that of its peers, the gravitational pull of its domestic market will heap a collective action problem of the first order on the United States and the West. Much like the way the Communist Party of China’s dynastic predecessors had sought to turn their steppe rivals’ avarice towards profit than war, and thereby also preserve their rivals’ fragmented political structure, the West’s collective action problem will paradoxically be exacerbated – not ameliorated – if Beijing embraces deeper reform of its industrial, investment and capital market regimes while appreciably reopening its civic society valve”.
Sourabh Gupta argues “the sheer size of the Chinese market will dictate that Washington embrace a light-touch approach when crafting selectively decoupled supply chain strategies. An expansively drawn economic security perimeter that thwarts allies and partners’ advanced technology exchanges with Beijing could well turn out to be the 21st century’s geo-economic equivalent of the Maginot Line, leading potentially to the designing out of US parts and components from ensuing value chains. The essence of wisdom lies in organizing bespoke coalitions on building-block technologies and thereafter ceding – not hoarding – economic decision-making power to allies and partners while maintaining overall convening authority. Allies must be treated more or less as co-equals, not as appendages leashed to the immediate American economic self-interest”.
Sourabh Gupta argues “George Kennan had counseled his countrymen in the penultimate paragraph of his celebrated essay to treat the issue of Soviet-American competition as “in essence a test of the overall worth of the United States as a nation among nations.” America needed only to measure up to its own best traditions to prevail and thereby prove itself worthy of preservation as a great nation. It remains wise counsel even today. America was once a beacon of liberty and prosperity, its economic and political system the envy of the world. American postwar statesmen built a global architecture premised on openness and universalism. Its economic might and its equally mighty dollar underwrote a system of free trade and open markets that engendered prosperity for all and was denied to none. Today, America’s political discourse has coarsened, its judicial opinion has regressed, its civic associations have fractured and the drift towards economic nationalism is palpable. The dominance of the plumbing of the international economic architecture, and the public goods that it furnished, is being semi-privatized and weaponized against adversaries and rejectionists. If cold wars are ultimately won with the soft power of attraction and persuasion, America must equally renew itself at home as it grapples with the China challenge abroad”.
Containment strategies are no longer appropriate because the circumstances have changed. The US’s “victory” can very much be attributed to its leadership in building the global economy from the ashes of World War 2 and the independence of colonies in the Global South. Containment sidelined Russia and China who were unable to participate in the US-influence international system. Today, the US and the West is backsliding on globalisation and markets. They resort to sanctions rather than bear economic gifts and allies are expected to swallow economic sacrifices. The absence of economic benefits is likely to render containment strategies ineffective.
In any case, containment strategies are irrelevant in the information realm – where geopolitical battles are breaking out in relation to technology, laws, jurisdiction, access, currency, finance, supply chains, logistics, data, standards and content. In the peer-to-peer information realm, borders are porous, definitions are complex and chokepoints relatively easy to bypass. Information battles are also asymmetric. An attack on interdependency on one front is met with a counter-attack on another. As US tightens its technology chokeholds, China accelerates de-dollarisation. The West has more to lose because its attacks are self-destructing its internationally-dominant network. In contrast, Russia and China are building their networks from scratch and have the opportunity to leapfrog legacy arrangements.
- Global landscape has changed
Most of all, the Cold War strategies are irrelevant because the global landscape has changed. In Cold War 1.0, the West was in ascendency as the primary industrial, commercial, financial and information power. Soviet Union and China in relative stagnation, the Global South (including Asia) largely under-developed.
Global diffusion of knowledge and information resulted in the redistribution of economic power eroding G7 domination. The West deindustrialised as they hollowed out manufacturing; largely to China. The majority of OECD economies became primarily service-oriented economies and major agriculture exporters. The communist countries eagerly integrated themselves into the international system. With caveats, generally communist countries modified legal frameworks and government operations, opened their markets and welcomed foreign businesses, liberalised the private sector and deepened their financial markets.
Anatol Lieven, Sarang Shidore and Marcus Stanley recall colonial states that achieved independence during 1945–1960 were turned into Third World battlefields during the Cold War. “The United States, the Soviet Union, and China all supported proxy wars against each other’s client states. The result was horrendous suffering for the peoples of the countries concerned, severe and unnecessary losses and defeats for the superpowers, and sometimes unpredicted outcomes that were contrary to the interests of both the United States and the Soviet Union. It turned out that these conflicts were in the end governed by local dynamics that neither Moscow, Beijing, nor Washington understood or could control”.
Today, the Cold War “domino theory” would be dismissed out of hand. Instead, OECD, Russia and China must deal with an independent and assertive Global South – many of whom have reached middle income status with some among the 20 largest economies in the world. Economic diffusion and dispersion have reduced the potency of military and soft power and the importance of the geopolitical agenda. The West will struggle to formulate an attractive economic and trade agenda in lieu of globalisation and free markets.
- Cultural barriers
In Cold War 1.0, it was largely Russia and China that erected the iron and bamboo curtains. Today, it is the West that are imposing barriers to trade, investments, research, travel, and education. Anatol Lieven notes “under Stalin and during the Cold War, the isolation of Soviet citizens from the West – and indeed the outside world in general – was a key Soviet aim. Preventing them from visiting the West was essential to preventing them from learning about the deep comparative failure of Soviet Communism, and from meeting with their ex-compatriots who had fled to the West after the Russian Revolution and the Second World War. Only a few privileged officials, diplomats, spies, and trusted intellectuals could travel, and they too were kept under close watch. And indeed, as younger members of the Soviet elites learned more about the West, so their faith in Communism and the Soviet state crumbled. The West responded to the Soviet strategy of self-isolation by offering refuge to any Soviet citizen who did manage to leave”.
Anatol Lieven points out today it is the West that is erecting barriers. Several European countries called for a ban on Russian travel; arguing it is not right that “at the same time as Russia is waging an aggressive, brutal war of aggression in Europe…Russians can live a normal life, travel in Europe, be tourists.” However, he argues “the leaders who propose this do not seem to understand that, in imitating the USSR in reverse, they are playing into the hands of the Putin regime. It is to Putin’s advantage that Russians should not be able to travel to Western Europe and meet Russian oppositionists there. It is also very much to the Kremlin’s advantage that the West be seen by Russians as implacably hostile not just to the Russian government, but to the Russian people as a whole”. He notes that even at the height of the Cold War, there were no bans on Russian travel and culture. Today, it is no longer the little red book containing Mao’s thoughts the West fears but the playful video-sharing app of Tik-Tok, China’s CBDC, Confucius Institutes, Chinese students and professors.
Wrong analogy leads to wrong lessons
Are we headed for Cold War 2.0? My view is that Cold War 2.0 is a misleading narrative that leads to misimpressions. Consider the following.
- The implied impression from a Cold War paradigm is that the democratic West will once again prevail over its authoritarian rivals. While it is difficult to predict the outcomes from infinite geopolitical conflicts, nonetheless the conflict is being waged on a substantially changed global landscape. The West has been in decline and is no longer able to impose its authority on the Global South as it used to. The West needs a more relevant strategy (rather than containment) and a convincing economic story (rather than ideology).
- Cold War 1.0 was not won by ideologies or military force (per se). Even after the victory, the ideological map of the world hasn’t changed much with most Communist regimes intact. Areas where US/NATO forces have intervened remain unstable after decades.
- The real lesson of Cold War 1.0 was the triumph of economics. In this regard, Western democratic ideals are no longer synonymous with economic goals. Domestically, citizens are finding out the “true” economic costs of geopolitical policies and military expansion. I think it is likely civil populations will generally not support military expansion and is beginning to resist further deterioration in economic conditions. Internationally, the West is perceived as weaponising “values” such as climate change, national security, human and labour rights to justify imposing sanctions perceived as blatantly serving its economic self-interests. The West seems to be ring-fencing it markets and retreating from globalisation. Alignment with the West seem to involve accepting economic sacrifices.
- The global economy grew during Cold War 1.0. The current great power conflict involves the weaponisation of economic interdependencies. The vindictive beggar-thy-neighbour policies is triggering a major global economic downturn that may become as severe as the 1930s depression. Global trade, investment and liquidity multipliers are continuing to contract. Monetary stimulus is being nullified (by liquidity trap conditions or private sector balance sheet retrenchment) and fiscal stimulus heavily constrained (by cross-border deleveraging due to de-dollarisation and central bank balance sheet constraints). We are entering the next phase of the global downturn where governments find themselves forced to cut expenditures and animal spirits go on strike.
Risks of escalation into a hot war
The biggest misimpression is that direct military confrontation can be avoided. Hal Brands points out “where we look back on the Cold War now and we think of it as the Long Peace…there was a 45-year principled agreement to compete short of war but not go into war, and that really, obviously, wasn’t how it worked. There were pervasive fears of global military conflict during the Cold War. The United States had to think very seriously about how to deter such a conflict or to fight it if it occurred, and so competition was really kind of a terrifying experience, especially given the presence of nuclear weapons in that competition and how new and terrifying they were”. He notes there was no consensus to engage in a cold war and no “acceptance, really, until the ’50s, maybe even the ’60s, that the United States was going to maintain this network of global military and diplomatic commitments”.
It is evident conflict is spreading. Timothy R. Heath, Kristen Gunness and Tristan Finazzo notes Chinese and Western analysts recognise that “a symptom of an international system in transition away from a U.S.-led unipolarity is its increasing fragmentation and disorder…The 2019 report China’s National defense in the new era…cites problems of eroding international arms control, nonproliferation, and disarmament efforts, the intensification of arms races in Asia and other regions, the spread of extremism and terrorism, and the increase in nontraditional security threats involving cybersecurity, biosecurity, and piracy…the U.S. Office of the Director of National Intelligence similarly anticipates a more uncertain and fractured international order and describes an evolving international order that features uncertainty about the United States, an inward-looking West, and erosion of norms for conflict prevention and human rights”.
Timothy R. Heath, Kristen Gunness and Tristan Finazzo notes “the dangers of a global confrontation could be amplified by the advent of new, poorly understood civilian and military technologies and unprecedented historical developments…Chinese success in extending a network of client states could also result in confrontations and crises involving U.S. interests that do not exist today”. Intensifying “competition for resources and markets…will lead to instabilities in different regions, from the Arctic to the Middle East and from South America to the South China Sea”. “Competition for natural resources and energy will likely persist even if China and the United States were to escalate their rivalry into conflict. Efforts to control access to vital resources could overlap and exacerbate related crises and wars, especially in countries holding important energy reserves, such as those in Africa, the Middle East, Central Asia, and possibly the Arctic regions. China’s desire to ensure secure supplies could conflict with demands by U.S. allies and partners for access to the same resources. The result could be mutually reinforcing sources of tension and fighting, which could add another layer of intractable conflict to a U.S.-China systemic war”.
Timothy R. Heath, Kristen Gunness and Tristan Finazzo adds that “as conflict begins, Washington and China could be expected to expand their defense buildups and intensify alliance-building activities. China might refrain from naming formal alliances out of political principle, but it would establish partnerships that offer similar security benefits. As in the two World Wars and the Cold War, countries and nonstate actors around the world would exploit the U.S.-China rivalry to achieve their own goals by appealing to one side or the other for patronage. Other countries could choose to support the United States or China due to a desire to gain benefits by demonstrating loyalty to one side or the other, some sympathy or historic relationship with one of the two rivals, or some combination of the above. A series of serious militarized crises could accelerate all these trends. In such a volatile and unstable situation, even a relatively minor incident could be sufficient to tip the strained relationship past the breaking point, kicking off the low-intensity war. However, in this scenario both capitals decide to wage an indirect war. The main driver could be a fear of nuclear exchange, or it could be the fact that despite the intensifying hostilities both sides still depend on each other to a large extent for trade. Whatever the precise reasons, each side chooses to overcome its adversary through a blend of a systemic war for global primacy and interventions as the primary mode of waging low-intensity war. In many ways, the paradigm for this geopolitical situation would be something akin to the early decades of the Cold War, in which two rival powers carried out political mobilization, oversaw major military buildups, developed alliances, feuded over a broad range of issues around the world, and competed for influence and partners. The United States and the Soviet Union also fought each other in proxy wars involving their allies and partners in many parts of the world but did not engage in direct conventional combat. A major difference, however, is the far narrower gap in national power between China and the United States than there was between the Soviet Union and the United States. The geographic scope of conflict could accordingly expand well beyond what it was during the Cold War. But, as in the Cold War case, the onset of hostilities would mark a critical turning point in the struggle for international primacy. Accordingly, the leadership of both countries would have a strong incentive to modify strategic goals and military strategies in light of the dramatic change in situation”.
Timothy R. Heath, Kristen Gunness, Tristan Finazzo notes “China’s foreign policy to support the realization of the China Dream would also likely change dramatically, with a more aggressive focus on demonizing the United States and rallying international supporters in a manner somewhat evocative of the polarizing politics of the Cold War. China could manipulate its long-standing foreign policy prohibitions on unilateral military intervention to justify its reliance on indirect involvement in intrastate wars primarily through military aid and assistance. In ways that recall patterns in the Cold War, the PLA could in some cases find itself drawn more deeply into the conflicts of client states as part of a broader effort to weaken its rival’s credibility and prestige. Given the decision to wage an indirect war and its own power projection limitations, China would have to pay particular attention to motivating client states to fight. Beijing has traditionally relied on a message of anti-imperialism and antimilitary intervention to rally international support against the West, and a similar message could underpin its effort to motivate clients to fight U.S.-backed forces. But clients might be motivated to support Chinese combat operations for other reasons. In the past World Wars and in the Cold War many countries sought to exploit their own local interstate rivalries and/or intrastate conflicts to advance their own goals by appealing to one side or the other for patronage. In World War I, for example, China and Japan joined the Allies in hopes of securing various benefits, including territory for Japan, at the expense of the Central Powers. Alternatively, clients could demonstrate support in hopes of maintaining good relations with a powerful China or in response to intense pressure from Beijing. In the case of World War II, Brazil furnished combat forces and many countries in Latin America sided with the United States against the Axis powers despite any grievance against them. These countries joined in part to maintain good relations with the United States and also partly in response to intense diplomatic pressure from Washington. But it is also possible that such a disparate collection of states with little ability to project force would not form a cohesive alliance. Rather, China could operate a loose-knit coalition in which countries shared little with one another beyond Chinese patronage and a general desire to redress historic wrongs. Chinese military coordination with its clients could be largely bilateral and transactional, based on Beijing’s judgment of how much the particular military aims of its clients supported the broader effort to diminish U.S power and prestige. Beijing might also try to build multilateral coalitions modeled on groups such as the SCO, but disunity, lack of consensus, and the limited power projection capabilities of most member states would severely constrain their value beyond propaganda. To compensate for their weaknesses, China might add paramilitary forces and security contractors to such coalitions. In short, the most likely tool of Chinese overseas indirect combat power could center on bilateral patron-client ties. Current models of Chinese client-patron relations, as seen in Cambodia, suggest a model that could be expanded on in such a low-intensity conflict scenario. In this model China could rely on the provision of arms and benefits to elites in client states to support their conflicts against adversaries that had some form of U.S. backing in exchange for limited access on the part of the PLA. In some cases, Chinese military forces might need to intervene more directly to prop up a client regime, but this option is most plausible for countries along China’s periphery. China might also devote resources to supporting proxy conflicts or building influence in states supported by such a key partner state as Russia. In each situation, China would perhaps assess the relative advantage that could be gained through a more active involvement and weigh the feasibility of competing options before deciding on one approach. China would also face the risk that the client state could escalate a situation beyond Beijing’s expectations, resulting in a larger commitment that China would find difficult to back out of”.
Widespread conflict could easily turn into a direct military confrontation. Timothy R. Heath, Kristen Gunness and Tristan Finazzo notes “the intensification of strategic rivalry between the United States and China introduces political and security challenges that in key ways exceed what U.S. policymakers faced during the Cold War. Although the immediate risk of conflict remains low and U.S.-Chinese relations are far less hostile than U.S.-Soviet relations tended to be, the two countries contend over a much broader range of issues than was the case during the Cold War. China and the United States routinely feud over an array of political, economic, technological, and ideological issues. The two countries also maintain a tense standoff over dangerous flash points near China and argue over the role of human rights, democracy, and individual freedoms in international politics. Moreover, unlike the Cold War, which saw the United States enter the contest near the zenith of its economic might, in the current rivalry, the nation is in a period of relative decline. Even though its economic growth trajectory is slowing, Chinese national power continues to accrue at a rate faster than that of the United States…Should China successfully realize its ambitious Belt and Road Initiative (BRI), an ambitious Chinese-led effort to develop a massive trade and infrastructure network spanning much of Africa and Eurasia, the United States could one day find itself confronting a peer rival for global leadership possessing far greater power than the Soviet Union ever held. If, under such conditions, U.S.-China relations deteriorated into open hostility, the risk of militarized crises and conflicts across many parts of the world could rapidly grow”.
Stephen F Cohen explains the current geopolitical conflict is potentially more dangerous. “Geopolitically, geographically the 40-year Cold War had its political epicentre very far from the Soviet Union, very far from Russia at least, in Berlin; everybody understood that the wall that divided Berlin was driving the politics of the Cold War…the new Cold War is unfolding on Russia’s own borders – whether it’s in the north Baltic area – in the small nations of Eastern Europe where NATO is undertaking an unprecedented military build-up, all the way down to Ukraine…where the United States rallies to Ukraine’s side and even talks of sending NATO warships…so close to Russia occurred”.
Stephen F Cohen points out “during the 40 year Cold War, Moscow and Washington created all sorts of mechanisms of cooperation, from cultural exchanges to arms control agreements, nuclear agreements – control and reduction”. “American leaders didn’t hesitate to negotiate with Soviet Communist leaders: Krushchev, Brezhnev, all the way up to Gorbachev. I mean they had summits, they had nuclear arms agreements; it’s true they denounced them as communist, but in the realpolitik of Cold War diplomacy they were treated as legitimate negotiating partners. But look what we have with Vladimir Putin now – the leader of Russia. He is so demonised in the United States…Trump went to Helsinki to have a perfectly standard, ritualistic, summit meeting with Putin…And yet Trump comes home and is widely accused in the American media of having committed treason. So how can we negotiate crisis in the new Cold War?…the Cuban missile crisis…John Kennedy the President was empowered and entrusted to negotiate a non-military solution to the Cuban missile crisis. What if – and it’s not a hypothetical as we see dangers of this from Syria to the north Baltic, to Ukraine – what if we have a Cuban missile crisis-like situation? Trump is not trusted in this country, Putin is widely demonised, and it’s unfolding on Russia’s borders…how do we avoid what could have happened in the Cuban missile crisis?” Stephen F Cohen adds this is affecting the corporate sector. “During the old Cold War, the corporate chiefs who wanted to do business in Soviet Russia such as PepsiCo or oil companies, they were behind Détente. Today, corporate America is silent. So we will see when this notion that contacts are criminal becomes more widespread, if they will step up…So criminalising contacts is very bad, I mean, what’s left? Not contacts of the kind that they’re criminalizing – all that’s left is war”.
Hence, the bad news is that we are more likely to be heading towards World War III rather than Cold War 2.0. The risks of a hot war are rising because of the escalating provocations from asymmetric warfare. The great temptation is that the great powers may want to test each other militarily but the risks are that this could set off a mutually destructive nuclear war.
Cold War 1.0 was described as a bi-polar conflict between the US and Russia. The end of Cold War begun a unique period of unipolar domination by the US. The rise of China suggests that we are entering a “Thucydides Trap” phase that will lead to Cold War 2.0. The flaw is to assume that we are reverting from a unipolar to a bipolar period.
Ben Norton notes “the European Union’s top foreign-policy official, Josep Borrell, admitted that the new cold war that the West is waging on China and Russia is not a conflict of democracies vs. authoritarians…There are many crises around the world, which are the trends that move this world. First, a messy multipolarity. There is the US-China competition. This is the most important”. The world is being structured around this competition – like it or not. The two big powers…are competing and this competition will restructure the world…Borrell explained…there are middle powers and swing states that don’t take a firm side in the new cold war: The world is not purely bipolar. We have multiple players and poles, each one looking for their interest and values. Look at Turkey, India, Brazil, South Africa, Mexico, Indonesia. They are middle powers. They are swing states – they vote on one side or the other according to their interests, not only their theoretical values…This creates this messy multipolarity…Borrell went on to admit that much of the Global South is neutral in this new cold war between the US and EU on one side and China and Russia on the other…These people do not want to be forced to take sides in this geopolitical competition. More [importantly], they feel that the global system does not deliver, and they are not receiving their part. They are not receiving enough recognition. They do not have the role they should have according to their population and their economic weight. And when facing these multiple crises – these multipolar crises – financial, food and energy crises – it is clear that they are not there following us because they blame us, rightly or not”. It has been observed that “countries representing 87% of the world’s population have refused to join the West’s new cold war”. Hence, Borrell concludes “the international political order is in a period of messy multipolarity, describing it as a world of radical uncertainty, where the speed and scope of change is exceptional.”
The geopolitical reality thus is that neither US nor China can be as dominant in the current global landscape. Cold War 1.0 was linear with clearly demarcated boundaries. Today’s geopolitical contests are multi-player and multi-realm and are complex with blur and overlapping boundaries. It is best to chart a path to reshape globalisation and the world order based on peaceful co-existence as this would maximise the economic dividend. At the moment though, high-tempo geopolitics is supressing economic imperatives. Hopefully, as economic fatigue to set in, the great powers can find solutions to accommodate each other to trigger a positive change in the geopolitical atmosphere.
Anatol Lieven (12 August 2022) “Bans on Russian travel and culture play into Putin’s hands”. Responsible Statecraft. https://responsiblestatecraft.org/2022/08/12/bans-on-russian-travel-and-culture-play-into-putins-hands/
Anatol Lieven, Sarang Shidore, Marcus Stanley (25 March 2022) “Avoiding the dangers of a protracted conflict in Ukraine”. Quincy Brief.
Ben Norton (27 October 2022) “EU admits new cold war is not democracy vs. autocracy: On our side, there are a lot of authoritarian regimes”. Multipolarista.
Dmitry Orlov (24 May 2022) “The secret American plan to Make Russia Great Again”. The Saker Blog. http://thesaker.is/the-secret-american-plan-to-make-russia-great-again/
Max Bergmann, Andrew Lohsen (8 December 2022) “Understanding the broader transatlantic security implications of greater Sino-Russian military alignment”. Center for Strategic & International Studies (CSIS). https://www.csis.org/analysis/understanding-broader-transatlantic-security-implications-greater-sino-russian-military
Mike Green, Hal Brands (25 February 2022) “Twilight struggle: Lessons from the Cold War for China strategy today”. Transcript. Center for Strategic and International Studies (CSIS). https://www.csis.org/analysis/twilight-struggle-lessons-cold-war-china-strategy-today
Phuah Eng Chye (2015) Policy paradigms for the anorexic and financialised economy: Managing the transition to an information society. http://www.amazon.com/dp/B01AWRAKJG
Phuah Eng Chye (5 June 2021) “Global reset – Two whales in a pond”. http://economicsofinformationsociety.com/global-reset-two-whales-in-a-pond/
Phuah Eng Chye (4 June 2022) “Theories on war and diplomacy (Part 1: Conflict theories)”. http://economicsofinformationsociety.com/theories-on-war-and-diplomacy-part-1-conflict-theories/
Phuah Eng Chye (18 June 2022) “Theories on war and diplomacy (Part 2: Integrated and ambiguous warfare)”. http://economicsofinformationsociety.com/theories-on-war-and-diplomacy-part-2-integrated-and-ambiguous-warfare/
Phuah Eng Chye (2 July 2022) “Theories on war and diplomacy (Part 3: Conflict in the information realm)”. http://economicsofinformationsociety.com/theories-on-war-and-diplomacy-part-3-conflict-in-the-information-realm/
Phuah Eng Chye (30 July 2022) “The Great Economic War (GEW) (Part 1: The beginning)”. http://economicsofinformationsociety.com/the-great-economic-war-gew-part-1-the-beginning/
Phuah Eng Chye (13 August 2022) “The Great Economic War (GEW) (Part 2: Strategic concepts and implications)”. http://economicsofinformationsociety.com/the-great-economic-war-gew-part-2-strategic-concepts-and-implications/
Phuah Eng Chye (27 August 2022) “The Great Economic War (GEW) (Part 3: The financial nuclear bomb)”. http://economicsofinformationsociety.com/the-great-economic-war-gew-part-3-the-financial-nuclear-bomb/
Phuah Eng Chye (10 September 2022) “The Great Economic War (GEW) (Part 4: Battles reshaping the global monetary order)”. http://economicsofinformationsociety.com/the-great-economic-war-gew-part-4-battles-reshaping-the-global-monetary-order/
Phuah Eng Chye (24 September 2022) “The Great Economic War (GEW) (Part 5: Global economic breakdown and monetary disorder)”. http://economicsofinformationsociety.com/the-great-economic-war-gew-part-5-global-economic-breakdown-and-monetary-disorder/
Phuah Eng Chye (8 October 2022) “The Great Economic War (GEW) (Part 6: Geopolitics, monetary policy challenges and the collapsing tripod)”. http://economicsofinformationsociety.com/the-great-economic-war-gew-part-6-geopolitics-monetary-policy-challenges-and-the-collapsing-tripod/
Phuah Eng Chye (22 October 2022) “The Great Economic War (GEW) (Part 7: Global depression and deglobalisation)”. http://economicsofinformationsociety.com/the-great-economic-war-gew-part-7-global-depression-and-deglobalisation/
Phuah Eng Chye (5 November 2022) “The Great Economic War (GEW) (Part 8: Lawfare)”. http://economicsofinformationsociety.com/the-great-economic-war-gew-part-8-lawfare/
Phuah Eng Chye (19 November 2022) “The Great Economic War (GEW) (Part 9: The geopoliticisation of MNCs)”. http://economicsofinformationsociety.com/the-great-economic-war-gew-part-9-geopoliticisation-of-mncs/
Phuah Eng Chye (3 December 2022) “The Great Economic War (GEW) (Part 10: The semiconductor technology battlefront)”. http://economicsofinformationsociety.com/the-great-economic-war-gew-part-10-the-semiconductor-technology-battlefront/
Piotr Dutkiewicz (4 March 2016) “The cold war that isn’t”. Valdai Club. https://valdaiclub.com/a/highlights/the-cold-war-that-isn-t/
Special Competitive Studies Project (Sept 12, 2022) “Mid-decade challenges to national competitiveness”. https://www.scsp.ai/wp-content/uploads/2022/09/SCSP-Mid-Decade-Challenges-to-National-Competitiveness.pdf
Sputnik News (21 December 2018) Dangers grow: “New cold war‘ acquired an evident ideological component – Scholar”. Interview with Stephen F Cohen. https://sputniknews.com/20181221/russia-usa-west-tensions-proxy-wars-media-sanctions-1070883355.html
Sourabh Gupta (27 August 2022) “Why Kennan’s containment won’t work on China”. Asia Times. https://asiatimes.com/2022/08/why-kennans-containment-wont-work-on-china/
Timothy R. Heath, Kristen Gunness, Tristan Finazzo (2022) “The return of great power war: Scenarios of systemic conflict between the United States and China”. Rand Corporation. https://www.rand.org/pubs/research_reports/RRA830-1.html
Tyler Durden (8 August 2022) “Visualizing a century of unions in Europe”. Zero Hedge. https://www.zerohedge.com/geopolitical/visualizing-century-unions-europe
 See Tyler Durden.
 Max Bergmann, Andrew Lohsen and Special Competitive Studies Project.
 See “The Great Economic War (GEW) (Part 2: Strategic concepts and implications)”.
 “The domino theory was a Cold War policy that suggested a communist government in one nation would quickly lead to communist takeovers in neighboring states, each falling like a perfectly aligned row of dominos. In Southeast Asia, the U.S. government used the now-discredited domino theory to justify its involvement in the Vietnam War and its support for a non-communist dictator in South Vietnam”. https://www.history.com/topics/cold-war/domino-theory
 See Sputnik News.