Are China and the US destined for a ‘cold war’ with limits?

If headlines and statements by diplomats in Beijing and Washington were all there was to go on, a casual observer would be forgiven for thinking the world’s two dominant powers were on a serious collision course.

Indeed, China and the US have been involved in a very public breakdown in diplomatic decorum in recent years, fueled in part by US President Donald Trump’s maverick foreign policy.

The Republican leader took power on a platform that claimed Washington had gotten the short end of the stick when it came to previous trade deals, and was suffering economically as a result.

As a result, Trump has negotiated a fresh trade deal with Beijing in January 2020, after earlier introducing tariffs that impacted $370 billion of Chinese imports into the US in 2018 and 2019, which cost US companies $61.6 billion in duties.

The US has separately banned telecom giant Huawei from selling its products in the US and labeled Beijing a ‘currency manipulator’ before rescinding the designation in January this year.

Besides trade, the countries have also locked horns over a whole raft of issues, including human rights issues in China and allegations of espionage and cyber warfare by Beijing.

On the Hong Kong issue, Washington has introduced sanctions targeting officials it accuses of violating the human rights of opposition protesters.

With regard to Xinjiang, where China is accused of interning millions of Muslim Uighurs, the US is mulling bans on cotton and other agricultural imports. China has rejected accusations  of abuses against the Uighurs, saying it runs “education camps” for the ethnic group. 

The US also accuses China of engaging in espionage and intellectual property theft. In July, Beijing was ordered by the Trump administration to vacate its consulate in the city of Houston, amid allegations of spying and intellectual theft. In a tit-for-tat response, the US consulate in Chengdu was forced to close.

In the latest measure by the US, a thousand visas for students with links to the Chinese military were made void by American officials.

On the military front, the US has sent naval vessels to the South China Sea to conduct exercises in the face of an increasingly assertive Chinese presence in the area.

Beijing has built up its dominance in the region by constructing artificial islands in the region.

Summarising the US stance, Secretary of State Mike Pompeo has said: “Whatever the reason, today China is increasingly authoritarian at home, and more aggressive in its hostility to freedom everywhere else. And President Trump has said: enough.”

If there was any idea that the Democrats would take a softer stance on Beijing, the Democratic nominee has dismissed it by also taking on a hawkish posture.

Former vice-president, Joe Biden, has also railed against the “global hegemony of Chinese communism”.

China has expanded its geo-political footprint across Asia amid a global retreat by the US under Trump and China’s own economic boom.

The Belt and Road initiative has seen Beijing invest tens of billions into infrastructure projects in neighbouring countries and those further away with the intention of facilitating trade.

This has resulted in stronger ties with traditional US allies, such as Pakistan, as well as greater influence in areas where the US has not historically had much influence, such as Central Asia. 

How far will the tensions go?

Despite the war of words, there are a number of factors preventing further escalation of tensions between Beijing and Washington.

The most obvious is the extent to which the two biggest economies in the world are integrated.

Chinese investors hold $1.6 trillion dollars in US securities, a figure second only to Japan when the tax haven of the Cayman Islands is excluded. US investors have holdings of more than $116 billion in China.

But as large as these sums are, a separate factor is the level to which supply chains for US  companies are dependent on China.

A survey by the American Chamber of Commerce in Shanghai found that 92 percent of businesses asked were committed to staying in the country despite the tensions.

Companies as diverse as Apple, Disney, and Walmart, either have subsidiaries in the country or have manufacturing or assembly operations there.

Any significant deterioration in US-China relations would have an immediate knock on effect on US financial markets as American corporations struggle to replace their supply chains.

Even within the US, blanket bans on Chinese students would have a devastating effect on the education sector.

The 1,000 revoked visas announced earlier this week are a drop in the water when the total number of Chinese students are taken into account.

At the end of the 2019 academic year, 369,548 Chinese students were enrolled in US institutions, injecting $13 billion into the US economy, even when tuition fees and living costs are excluded.

With such high stakes, it is hard to imagine both Republican and Democrats not having an idea in mind of how far they want this anti-Chinese spat to go.

For its part, China has held back on its own punitive measures, settling for nothing more than tit-for-tat responses.

With only one side willing to do all the shouting, it seems unlikely the dispute will reach crisis point anytime soon.