Is There a New Cold War Brewing?

Two countries are sitting at the same table, playing two very different games. China, playing its 2,500 year old game “GO”, the objective of which is to occupy as much of the game board territory as possible and capture your opponent by surrounding them with your pieces called stones. The U.S., playing the classic card game “War”, knowing it has a stacked deck of high cards to play and using them for short-term victories. Until these two countries play the same game and abide by the same set of rules, uncertainty and chaos will continue. Perhaps “Memory” is the more appropriate game to be played with the Cold War card a stark reminder to what can ultimately happen if this behaviour continues. This card should never be turned over again.

In the past 500 years there have been 16 cases when a rising power threatened the established ruling power; 12 of these ended in war.

For 100 years now the U.S. has been the world’s superpower. For the first time in 50 years, since the end of the Cold War, the U.S. is once again being challenged; this time by China. China, given its resurgence and rise to power, believes that it is worthy and deserving of having a more influential role in world affairs. The U.S. views China’s rise to power as a threat to its own, and that it must fall back in line. The U.S. Administration’s belief that a more prosperous China would result in their economic and political ideology gravitating towards that of their own never came to fruition. Instead, the cultures between the two countries remain vastly different. One believes the foundation for society is built on individual liberties while the other believes in order and control.

For much of China’s history, it was home to the most advanced economy and civilization in the world. More recently, however, between 1839-1949 China’s dominance was severely diluted as a result of intervention and imperialism by Western powers. The Chinese economy suffered as it succumbed to a number of wars and invasions while its civilians were plagued by Western induced opioid addictions. This period of time, known as a “century of humiliation” for China, has been a central piece in the ideology of the Peoples Republic of China. With this in mind, the strong desire for China to rise again has shaped its economic, military and political actions. No better initiative resembles this desire to rise again then the symbolic rejuvenation of the Silk Road which reminds one of a period of time when China was at its height in power. This rejuvenation of the Silk Road is known today as the “One Belt One Road” initiative. Through the One Belt One Road initiative the Chinese government is heavily investing in the infrastructure development of mainly emerging countries, spanning China to the Middle East, Africa and South America.

China has become the financier for infrastructure projects in Latin America, surpassing that of the World Bank, by lending $135 billion to the region since 2006. A grander strategy seems to be in the works, one geared around establishing strategic alliances. Consider the installation of a surveillance program in Ecuador, the Chinese military sponsored satellite and space mission control station in Argentina or the training of military officials. China has become indispensable in this region by providing much needed infrastructure support and bailing out local governments. However, such indebtedness has come at a high price. Take Venezuela or Ecuador for example, who have committed to repaying the loans back in oil. This has given China a significant claim on their oil reserves (90% in the case of Ecuador) and this loss of revenue stream has contributed to the poverty these countries are experiencing today. Many countries which form part of the One Belt One Road initiative have returned to the IMF seeking debt relief, leaving China with a majority ownership stake in strategic assets that were put up as collateral. China now has a majority stake in 76 ports in 36 countries. The subtlety between the expansion of China’s influence and that of the objective of the ancient game Go are not lost.

Furthermore, China’s growing ties with both Russia and Saudi Arabia could be the start of China’s initiative to price oil in its own local currency, the yuan. Since 1974, oil has been priced in U.S. dollars as a result of the pact between the U.S. and Saudi Arabia. This pact is the Achilles Heel of the U.S. as its fiscal sustainability depends on it.

Considering all this, it is apparent that China’s resurgence and increased international ties pose a very real threat to the U.S. and that it was only a matter of time until tensions mounted. In September, we saw such tensions move beyond the mirage of “trade issues” into something much more. Consider the following string of events:

Sept 20th: The U.S. sanctioned the branch of Chinese military responsible for purchasing weapons and equipment for buying Russian fighter jets and missiles. The Chinese Foreign Ministry spokesperson, Geng Shuang, responded by saying “(The sanctions) have severely violated the basic norms of international relations and damaged the relations between the two countries and two militaries”.

Sept 25th: The U.S. sells $330 million worth of military gear to Taiwan. The Pentagon said the sale would help “contribute to the foreign policy and national security of the United States by helping to improve the security and defensive capability of the recipient."

Sept 25th: China denies a U.S. carrier ship to make a port call in Hong Kong.

Sept 30th: A Chinese warship played a game of chicken with a U.S. warship in the South China Sea, coming within 45 yards of a collision. A direct challenge to the U.S. patrolling the Spratly Islands.

Oct 4th: The speech from Vice President Mike Pence was a clear indication that the U.S. will no longer lend a hand to China. This was even referred to by some as a new edition of the Iron Curtain speech.

Do the above events sound like a trade war or something far greater? We believe that trade is in fact the lesser of the evils as China has become more powerful and influential across the globe and has opted to align themselves with Russia, not the U.S.

China claims sovereignty over the South China Sea while the U.S. and the rest of the world view it as international waters. The U.S. has been the protector of the Pacific for 70 years now and many of its Asian allies depend on this protection as China’s military spend far exceeds the rest of Asia combined. China’s increased military presence in the South China Sea, including the militarization of its artificial islands, poses a grave threat to the current order. There are multiple regions of contention between China and the U.S., whether it’s the South China Sea, North Korea, Russia or Taiwan. In the Cold War, it was the small island of Cuba that exacerbated tensions.

The classification of China, the second largest economy, as a threat will undoubtedly have drastic ramifications on the global economy. After all, 40% of the world’s growth since the Financial Crisis has come from China. The threat of escalating conflict as China challenges the U.S. for supremacy is a very serious one. There is an underlying emotional drive behind their desire to rise to power once again and solidify their belief in China as the Central Kingdom. This cannot be underappreciated and unlike the Soviet Union, China will not back down. With China, it is important not to listen to what they say but rather watch what they do. Their actions and initiatives as outlined above would indicate that a grander strategy of territorial influence is a direct challenge to the U.S. It appears to be that China is indeed playing the game Go.

The Summerhill Team