Surely not another Cold War!

loading Seagate Wuxi China Factory.

Tensions continue to brew between the US and China. Will Asean be forced to take sides? The earlier it acts to form regional mediation institutions, the better its chances of avoiding such an uncomfortable situation.

In the many workshops on US-China relations that I have attended in the last decade, one very popular view about the future of US-China relations is based on the global consequences of the rise of Germany in the 1890s and on the rise of Japan in the 1930s. In both cases, there was a disastrous war between the emerging super-power and the existing super-power. So according to this popular view, Asean should expect a war between China and the US.

In my view, this prediction will surely be wrong, but the absence of a war in the future does not imply a “no worries” outcome for Asean.

The reason why I am confident in predicting no US-China war is because the nature of conflict between major powers has taken on a new form since August 29, 1949. On that day, the Soviet Union exploded its first atomic bomb, and this development had rendered war between the USSR and the US possible only if at least one of the two leaders is mad and if he is also well beyond the restraint of his colleagues.

From 1949 onwards, conflict between these two powers took the form of indirect wars, such as those in Cambodia, Vietnam, Mozambique, Angola, Cuba, Bolivia and Afghanistan. In the age of nuclear weapons, conflict between major powers assumes the form of proxy war that is fought between third and fourth parties with conventional weapons supplied by the major powers.

The potential for a US-China Cold War first appeared on August 21, 1991 when the Soviet Union imploded upon the failure of the KGB coup against Gorbachev. This terminated the de-facto US-China alliance against the USSR. To be sure, most of the factors behind the US-Soviet Cold War are also present in the US-China relations:

a) ideological competition that is akin to the religious wars between Christianity and Islam from the 11th to 13th century;

b) a competition over the control of raw resources, as manifested by US policy on the Middle East from 1945 onward. For example, the CIA overthrew the democratically-elected Prime Minister of Iran, Mohammad Mossadegh, after he nationalised the foreign-owned company; and

c) the old-fashion competition for leadership of the global community.

So, what is there to prevent a new Cold War?

The optimists among us would say that both Xi Jinping and Barack Hussein Obama are fully cognisant of the tremendous waste of such a confrontation, and neither is certain that his own side would win. More importantly, neither the Chinese people nor the American people fear or dislike each other enough to support a Cold War.

Former Secretary of Defense Leon E. Panetta shook hands with President of the People's Republic of China, Xi Jinping prior to a meeting in Beijing, China on September 19, 2012.

I would like simply to believe the optimists but I am jaded by the experience in 1910 when Norman Angell published his book, The Great Illusion. He predicted that there would be no more wars in Europe that would involve all the major powers because the economic, social and political costs would just be catastrophic.

This 1910 prediction was proved wrong within four years; World War I lasted five years, killing 16 million people and wounding 20 million. However, Norman Angell did receive the Nobel Peace Prize.

To be fair to Angell, of the nine macroeconomists who won the Nobel Prize in Economics in the last 20 years, four of them would have ruled out the possibility of the Global Financial Crisis in 2008.

I am not a great optimist because I acknowledge the occasioned capacity of our species to be short-sighted or short-tempered. There are worrying signs that a new Cold War is being hatched. In the Asean Foreign Ministers’ meeting in Phnom Penh in July 2012, the participants failed to agree on a concluding joint statement for the first time in its 45-year history because of disagreement between Vietnam and the Philippines on the one hand and Cambodia on the other about whether mention should be made of the dispute with China over the South China Sea. Clearly, we cannot rule out a second Cold War, but I do think that this is entirely preventable.

The Chinese Ministry of Commerce vice minister and US Trade and Development Agency acting director exchange signed copies of the Memorandum of Understanding.

The inescapable fact is that there will always be conflicts between nations, but there are low-level conflicts and high-level conflicts. A low-level conflict is the type of competition between Western Europe and the US, just like the usual conflict between brothers. A highlevel conflict describes the Cold War, a conflict just like that between wife and mistress.

Asean would almost surely benefit if the US and China could keep their conflict at low level because then both would be out to win friends and, hence, willing to accommodate Asean interests. Asean would certainly lose in a second Cold War because both the US and China would adopt the stance of “If you are not with me, then you are against me”, forcing Asean to take sides in their conflict.

Asean hence cannot be a bystander in the present intensification of Sino-US conflict. Asean should consider establishing regional mediation institutions to prevent any conflict from escalating rather than depending on existing international institutions like the UN to do that.

Protesters rally against the Chinese Vice President's White House visit on February 14, 2012, in Washington DC.

The question is whether regional mediation institutions could even be built without China’s active support. It is to China’s advantage to delay the establishment of such institutions because it can count on becoming an even bigger player in the future, hence enjoying a bigger role than if the institution were set up now. But China should realise that this advantage of a bigger role in the institution established later should be weighed against the greater risk of driving Asean closer to the US.

Right now, I see the most likely trigger for the new Cold War to be a Sino-US Trade War. A trade war would potentially unleash other tensions that would cumulatively push the two nations into the new Cold War.

I am quite worried about the present situation within the US and within China. If the US continues to adjust incorrectly to the globalisation-induced changes within its economy, it will experience prolonged high unemployment and be tempted into taking protectionist measures to lower unemployment. And if China does not promote the growth of the private sector at the expense of state-controlled businesses, it would have to continue relying on exports as the most reliable growth engine, and hence be overly sensitive to US protectionist measures.

If the present policies do not change in both countries, then the chances of a US-China trade war will continue to grow.

Woo Wing Thye is the executive director of Penang Institute and Professor of Economics at UC Davis.

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