Monday, April 26, 2021

Felix Zulauf: The New Cold War

The thing the Chinese understand is that American generals have not won a war since 1945.  
Go ahead, name a conflict the U.S. won in the last 75 years, I'll wait.

Okay, I'll give you Grenada. Got another one?

From The, April 15:

A new conflict has begun between the United States and China that will shape the coming decades. No country will be unaffected, and Europe some day may have to pick sides. Risk premiums for financial assets will rise.

The first meeting between representatives of the new U.S. Administration and China in Anchorage was spiteful and accusatory from both sides. While Donald Trump in the past years had been primarily concerned with economic issues, Joe Biden's envoys also attacked the People's Republic on human rights grounds.

Beijing does not put up with this kind of interference in internal affairs. Instead of an easing of tensions, a new cold war is brewing between the two great powers.

More dangerous than the Cold War of the 20th century

The Cold War of the 20th century, between the Soviet Union and the United States, was about ideology. On one side was the West, united behind the leading power, the United States, whose values were based on market economy and freedom; on the other side was the East, led by Moscow based on planned economy and oppression. It was capitalism versus communism.

The Soviet Union was never a serious challenger economically, however, only militarily. It was a bipolar world, with practically no points of economic contact between the two superpowers. Therefore, the world economy outside the communist bloc was only threatened if there had been a military escalation.

The new conflict between the U.S. and China is more problematic and dangerous in comparison. In today's multipolar world, China is closely intertwined economically with the U.S. and the rest of the world. Companies from every continent have production and sales points in China and America. As a result, the new cold war is injecting latent insecurity into diverse economies around the world.

Risk of military conflict

Economic logic should prevent a confrontation, but in the ideological and geostrategic struggle between Washington and Beijing, it is not logic but power, self-determination and pride that will dominate.

Today's situation corresponds to what the Greek historian Thucydides described some 2,500 years ago using the example of Sparta against Athens: The conflict between an established hegemonic power and a rising challenger. In the last 500 years, this situation has occurred 16 times in world history – and twelve of them ended in war. If you add proxy wars like Vietnam or Korea, there have been even more.

The risk of military conflict must therefore be considered high in view of historical experience. However, this is completely underestimated by today's politicians, business leaders and the broad society. Our Western society sees the big problems of today in issues such as inequality, gender and race, climate and political correctness.

This glorified view neglects the harsh realities of the world. This could backfire. In Europe, we are as unprepared for a new cold war as we were for a pandemic. Yet this conflict is already in full swing, with protectionist and sanctioning steps decided by both sides.

Far-sighted leadership in Beijing

Measured by gross domestic product, the United States is still the world's largest economy. But if Hong Kong and Taiwan are added to the People's Republic, China is already number one and the largest market for many consumer goods, from automobiles to cell phones.

The rapid rise of China is breathtaking to anyone who has visited the country regularly over the years. No other country has such a good and modern infrastructure. Of course, China has its problems: Its rapid rise, to a large extent financed with debt, has led to a poorly capitalized banking system and over-indebted companies. However, the leadership in Beijing, which in my view is much more far-sighted and in touch with reality than Western politics, is aware of this and is working on it.

President Xi Jinping told his own people and the world a few years ago that China aims to be the largest economic power in a few years. He also said that the Middle Kingdom will assert its influence in geopolitics. This was a wake-up call for the current hegemon, the USA. In fact, China is arming itself militarily in order to close the gap with the U.S. It is not quite there yet, but the goal is clear....