In the contest with China, geopolitics and geo-economics must be one
At some point in the last few years, what former Russian president Boris Yeltsin called the “cold peace” of the 1990s has given way to a new cold war. At first glance, it looks like a replay of the first Cold War, of 1946 to 1989, with Russia and China on one side and the U.S. and its European and East Asian and Middle Eastern allies on the other. But Cold War II is fundamentally different from Cold War I in important respects. Unless American policymakers understand the differences, the U.S. risks strategic failure and national humiliation.
Cold War I was the third world war of the 20th century. Because of the destructiveness of conventional as well as nuclear weapons, the blocs led by the U.S. and the Soviet Union did not bomb each other’s homelands or send their armies directly against one another. Instead, Cold War I was fought over four and a half decades in slow motion, by means of arms races, economic embargos, espionage and sabotage, tense stand-offs over flashpoints such as Cuba, Berlin, and Taiwan, and proxy wars, with the bloodiest in Korea, Indochina, and Afghanistan.
With his description of “the state of nature” in Leviathan, Thomas Hobbes provided a good picture of a cold war:
For war consisteth not in battle only, or in the act of fighting, but in a tract of time, wherein the will to contend by battle is sufficiently known. . . . For as the nature of foul weather lieth not in a shower or two of rain, but in an inclination thereto of many days together; so the nature of war consisteth not in actual fighting, but in the known disposition thereto during all the time there is no assurance to the contrary. All other time is peace.
By this standard, the U.S. is in a Hobbesian state of war — if only of cold war. It is engaged in escalating arms races with China and Russia. In Ukraine and Syria, the U.S. and Russia are engaged in proxy wars, moderated in Syria by occasional collaboration against the remnants of ISIS. China’s “Great Wall of Sand,” consisting of enlarged and fortified islands in areas of the South China Sea, along with challenges to Chinese territorial claims in the form of freedom-of-navigation exercises by the U.S. and its regional allies, brings to mind the Iron Curtain that divided Cold War Europe and caused repeated crises over divided Berlin. Cyber war has added a new component to the familiar Cold War weapons of espionage, sabotage, and propaganda. Much of the Russian economy is under sanctions by the U.S. and its allies. The Trump administration has launched a trade offensive against China, justified by complaints about forced technology transfer and mercantilist trade practices but ultimately motivated by fear of China’s shift from developing country to high-tech great power.
In geopolitics, Cold War I consisted of three interlocking conflicts. The first was a frozen conflict in Europe between 1946 and the fall of the Berlin Wall in 1989, in which the U.S. and NATO deterred Soviet invasion or intimidation of Western Europe but refrained from intervening when the Red Army crushed rebellions against Moscow in East Germany in 1953, Hungary in 1956, and Czechoslovakia in 1968. The second conflict was what might be called the Wars of the Chinese Periphery, a series of proxy wars in Korea, Indochina, and Afghanistan between the Communist takeover of China in 1949 and the 1990s. The third theater of Cold War I, less important than Central Europe and China’s periphery, was the post-colonial Third World, in which the U.S. and the USSR, and sometimes China, competed for military influence and international prestige from Asia and the Middle East to Africa and Latin America.
To date, Cold War II also consists of three interlocking conflicts: a contest between the U.S. and China for primacy in East Asia, and potentially Eurasia and the world; a rivalry between the U.S. and Russia for primacy in Russia’s “near abroad” (the former Soviet republics) and the Middle East; and a rivalry between the U.S. and Iran in the Middle East. Unlike the members of the Communist bloc in the Cold War, America’s major rivals in Cold War II do not share an ideology. The regimes in China, Russia, and Iran have next to nothing in common except the desire to reduce U.S. influence in their own neighborhoods.
In general, the differences between the previous cold war and this one outweigh the similarities. In Cold War I, the People’s Republic of China was first the junior partner of Soviet Russia, then its rival, and finally, in the 1980s, a de facto ally of the United States. In Cold War II, China is the most potentially powerful adversary of the U.S., and a much-diminished Russia is China’s opportunistic ally.
Cold War I was both a great-power struggle and an ideological contest. Cold War II, by contrast, is likely to be a traditional great-power struggle in which neo-Confucian or neo-Maoist authoritarianism has few supporters abroad, however much other countries may emulate aspects of Chinese state capitalism or welcome Chinese trade and investment.
But the greatest difference between Cold War I and Cold War II has to do with the relationship of military power to trade policy. During Cold War I, from the 1940s until the 1980s, the two were more or less divorced. This is not to say that economic policy was unimportant in Cold War I; quite the contrary. The Soviet Union was subject to stringent economic sanctions. But because the Soviet Union was largely autarkic, the cost of arms races was the chief way that the U.S. and its allies influenced the Soviet-bloc economy.
Meanwhile, the U.S. encouraged deeper integration among the allied nations of the American “Free World” bloc. The Iron Curtain in Europe had cut off West Germany from many of its natural markets, as the Communist takeover of China had done to Japan. As a result, throughout the first Cold War the U.S., in the interest of anti-Soviet-alliance unity, opened the American home market to its military protectorates and frequently turned a blind eye to mercantilist trade practices that unfairly harmed U.S. industries — practices that were both blatant and highly successful in the cases of Japan, South Korea, and Taiwan.
In the nearly three decades since the Cold War ended, until the presidency of Donald Trump, the separation of military policy and trade policy continued. Under presidents of both parties, the Pentagon drew up war plans against China while the Commerce Department blessed the offshoring by U.S.-based multinationals of much of America’s industrial base to Chinese soil. This combination of “containment” and “engagement” inspired a name that itself was a contradiction: “congagement.”
America’s contradictory military and economic policies toward China have now collided. Two Chinese smartphone companies backed by the Chinese state, Huawei and ZTE, have been banned from selling to the U.S. government because of security concerns. And in the last few years, at a time of growing tensions with Russia, the U.S., which became dependent upon Russian rockets to put military satellites into orbit, has sought to restore America’s spaceflight capabilities, which Bush (43) Republicans and Clinton-Obama Democrats allowed to decay.
Sacrificing some American industries to keep smaller, dependent U.S. allies in the American bloc might have made sense in Cold War I. But with the perspective of history, we are likely to judge the Clinton, Bush 43, and Obama administrations harshly for their feeble responses to aggressive industrial competition on the part of China, a military and diplomatic rival, to say nothing of allowing the Pentagon to become dependent upon Russian rockets.
What explains this record of bipartisan folly? In the realm of ideas, the dominant ideology of the U.S. foreign-policy establishment after the Berlin Wall fell was a kind of modified Marxist determinism. Economic growth in former socialist countries such as China, unleashed by free markets, would inevitably lead to multi-party systems (“democratic peace theory”) and the replacement of military rivalry by commercial interdependence in a world of free trade (“liberal peace theory”). The coming of the golden age of free trade, it was believed, could be hastened by “shock therapy” conversions of socialist economies into market economies, as in Russia. The so-called global democratic revolution could also be accelerated by means of U.S.-supported protests (“orange revolutions” in Ukraine and elsewhere) or U.S. military invasions or proxy wars to topple autocratic regimes (former Yugoslavia, Iraq, Syria, Libya).
Interests as well as ideas played a part in America’s disastrous post–Cold War strategy. In order to have access to cheap labor or, in the case of China, access on the Chinese government’s terms to a growing future market, many U.S. industrial corporations offshored manufacturing to China or became dependent on Chinese imports (many of these came from subsidiaries of U.S., Japanese, South Korean, Taiwanese, and European companies). Under Democrats and Republicans alike, U.S. trade policy served the interests not of domestic manufacturers and parts suppliers but of Wall Street (seeking to liberalize foreign financial systems), Silicon Valley and Hollywood and pharma (seeking more intellectual-property protection through trade treaties), and U.S. agribusiness, which by its nature cannot be outsourced and which can flourish even in a deindustrialized, weak U.S.
Recriminations can be left to future historians. The urgent question is: What is the way forward now for America?
In today’s Cold War II, as in yesterday’s Cold War I, there are four basic strategic options: rollback, containment, détente, and appeasement. America’s Cold War leaders rejected both appeasement and any reckless attempt to “roll back” Soviet power from Eastern Europe at the risk of direct war, in favor of either containment — blocking or raising the costs of the other side’s bids for greater influence — or an uneasy truce in the form of détente.
Tactical appeasement can be useful sometimes, but a grand strategy of appeasement — a U.S. retreat to North America, ceding the rest of the world to Eurasian great powers — is not in America’s interest. The U.S. prevailed in the world wars and Cold War I only by means of alliances with great powers in the Old World, alliances made possible by U.S. command of the “global commons” — sea, air, and space. The U.S. must continue to have allies in Eurasia and other regions outside of North America, and the richer and more powerful and populous these allies are, the better.
Rollback is irrelevant in this cold war. China is unlikely to retreat from the positions it has seized in the South China Sea. Russia may agree to a neutralized Ukraine but it is no more likely to give Crimea back to Ukraine than the U.S. is likely to give its Guantanamo Bay naval base back to Cuba or the U.K. is likely to turn over Gibraltar to Spain.
This leaves two strategic options: containment and détente. The two are complementary, inasmuch as the purpose of containment today is to make it possible to negotiate a more favorable détente from a position of strength tomorrow.
During Cold War I, containment was most successful when it took the form of arms races and embargos that undermined the economic basis of the Soviet Union. The U.S. containment policy encountered its greatest setbacks in the Korean and Vietnam wars. The massive cost in American blood and treasure from these conflicts undermined domestic support for the patient Cold War containment policy, which was attacked by the McCarthyite Right in the 1950s and early 1960s as too dovish and by the anti-war Left in the late 1960s and 1970s as too hawkish.
In Cold War II even more than in Cold War I, the U.S. must play to its strengths, which are in technology and economics. While avoiding the danger of being trapped in prolonged and costly proxy wars, the U.S. must also avoid wasting precious defense dollars on equipping the military for imaginary conventional naval wars with China or ground wars with Russia that will never happen. In Cold War II, economic instruments will eclipse military instruments in importance, without replacing them entirely.
In Cold War I, the Soviet Union was a military rival but not a commercial rival, and Japan was a commercial rival but not a military rival. In Cold War II, China is both a military and a commercial rival. Because of this, the U.S. needs to break with its 70-year policy of separating geopolitics from geo-economics and adopt the classic great-power practice of treating the military, diplomacy, and trade as three coordinated instruments of a single strategy.
Instead of letting state-capitalist nations such as China or profit-seeking multinationals restructure the U.S. economy to promote their own goals, the American republic needs a national industrial strategy of its own. To be precise, it needs to return to the time-tested and successful Hamiltonian industrial strategy of using whatever means are necessary — tariffs, subsidies, procurement, tax breaks, even overseas-development loans to countries that purchase U.S. manufactured exports — to ensure that strategic industries necessary to U.S. military power are introduced to America or remain here. Following this logic, the federal government in the 19th century backed the development of U.S. manufacturing and in the 20th developed targeted American industries, including telephony, television and radio, aviation, electronics, nuclear power, spaceflight, and computers.
With its Made in China 2025 initiative, the Chinese government has announced a push for Chinese leadership in ten key industries, including advanced information technology, aviation, rail, pharmaceuticals, and others. This should be a Sputnik moment for the U.S., inspiring Americans to identify and promote not specific companies but key “dual-use” industries important in both defense and civilian commerce.
And that means adequate and permanent production on U.S. soil, not just innovation in America and production elsewhere. Given a choice between leadership in manufacturing or innovation, any rational great power would choose manufacturing. It is much easier to steal foreign intellectual property than it is to build a factory and train a skilled labor force. Civilian factories can be converted to military production in arms races and wars. Enemy powers cannot be threatened with bombardment by patents or start-ups.
Nor should the U.S. rely too much on America’s major allies to supply the American defense-industrial base. Japan, South Korea, and Germany are far from the U.S. across the oceans and near America’s major potential adversaries. Offshoring significant U.S. military supply chains to other continents seems imprudent.
Whatever the appropriate policy mix may be, the goal of American military-industrial strategy must remain the same as it was in 1791, when Alexander Hamilton, the first U.S. secretary of the Treasury, in his Report on Manufactures called for a comprehensive strategy to make the U.S. “independent on foreign nations for military and other essential supplies.”
In addition to pursuing a policy to maintain military-industrial leadership in strategic sectors, the U.S. needs to strengthen its economic diplomacy instead of relying excessively on its military to project American influence. In Cold War I, the U.S. competed for the support of both developed and developing nations with programs such as the Marshall Plan, the Point Four Program, Atoms for Peace, the Alliance for Progress, and the Peace Corps, along with agencies such as the Export-Import Bank (Exim Bank) and the Overseas Private Investment Corporation (OPIC). China uses its development banks to win allies by financing infrastructure projects and economic development in countries of strategic military and commercial importance from Pakistan to Africa. Similarly, America’s overseas development banks, the Exim Bank and OPIC should be seen as strategic instruments. The attack by an alliance of libertarians and leftists on the Exim Bank ranks with America’s recent dependence on Russian rockets and Chinese electronics as a study in strategic incompetence.
But the U.S. cannot balance a rising China on its own. The period between 1914 and 2014 can accurately be described as “the American century.” At some point during World War I, the gross domestic product (GDP) of the United States passed that of the British Empire as a whole. Around a century later, in 2014, according to the IMF, the GDP of China passed that of the U.S.
Gross domestic product is a proxy, however rough and imperfect, for potential military power. And while China’s per capita income remains well below that of a developed country, as measured by purchasing-power parity China has already surpassed the U.S. to become the world’s largest economy. By another measure, market exchange rates, it will probably do so by 2030. In one projection by the European Commission, China will account for 28 percent of global GDP in 2050, compared with 16 percent for the U.S., 15 percent for the EU, 8 percent for India, and 5 percent for Japan. The state-owned-enterprise sector of China is as big as the entire Japanese economy.
In the late 1940s, the influential diplomat George Kennan identified five centers of global military-industrial power: the United States, Britain, Germany and Central Europe, Japan, and the Soviet Union. In the half century that followed, U.S. Cold War strategy took different forms, which were often criticized as misguided by Kennan himself. But the underlying strategy remained: denying the Soviet Union access, by means of invasion or intimidation, to the industrial and economic resources of the U.S., Western Europe, and Japan.
By the mid 21st century, there will be either three major regions with industrial power and military potential — East Asia, North America, and Europe — or four, including South Asia, if optimistic projections of India’s growth are realized. Three of these four regions will be dominated by a single colossal nation-state — China, the U.S., and India. The fourth region, Europe, rocked today by democratic nationalist rebellions against pan-European technocratic institutions, is likely to remain a loose bloc divided among sovereign countries. In addition, there will be significant second-tier powers, some of which, such as Russia, Turkey, and Iran, will be key players in critical areas.
If we apply something like George Kennan’s logic to the emerging multipolar world order, the U.S. could seek to balance China by encouraging the military strength and prosperity of Europe and India. But it is far from clear that the Atlantic alliance of Cold War I can survive a prolonged Sino–American conflict in Cold War II. The Red Army in Eastern Europe was a clear and present danger to Western Europe. Contemporary China is not.
When it comes to trade with China, Europeans, like Americans, are torn between the desire to resist damaging Chinese mercantilism and the desire to appease the Chinese regime to gain access to its markets, labor force, or capital exports. Over the objection of the U.S., many of America’s European allies joined the Chinese-controlled Asian Infrastructure Investment Bank, led by Britain, which was not about to let the special relationship get in the way of fees for City of London financiers.
Unlike many Europeans, Indians tend to view China as a military threat. China humiliated India in a brief border war in 1962, and now it seems to be encircling India by making client states of Pakistan and Sri Lanka. But though its population will soon surpass China’s, India is much poorer and has a long way to catch up. Helping India develop should be an American geostrategic objective.
Two other regions are of special strategic concern to the U.S.: Africa, and America’s own “near abroad” in Mexico, Central America, and the Caribbean.
According to the United Nations, more than half of the 2.4 billion people added to the global population by 2050 will be Africans. In the very long run, the development of parts or all of Africa could add one or more centers of industrial and military power and middle-class consumption. But for most or all of this century, Africa looks more likely to be riven by conflicts within its artificial multi-ethnic states and to send unsought migrants to Europe and other parts of the world. It may also be an important chessboard in the rivalries of Cold War II.
Then there is America’s near abroad. America’s geopolitical rivals have always sought to turn Mexico against the U.S. In the 1840s, Britain viewed Mexico and the briefly independent Republic of Texas as welcome obstacles to U.S. continental expansion. Louis Bonaparte used the distraction of the U.S. during the Civil War to make a brief attempt to incorporate Mexico into the French Empire under the Austrian figurehead monarch Maximilian. Before U.S. entry into World War I, Imperial Germany funded factions in the Mexican civil war and, with the notorious Zimmermann Telegram, encouraged Mexico to attack the U.S. Preventing Mexico, Central America, and the islands of the Caribbean from becoming allies of rival great powers must always be a priority of U.S. grand strategy.
The U.S. has a right to control immigration via its southwestern and Gulf Coast borders, but it should do so without insulting and alienating our most important neighbors. In spite of its violence and political turmoil, Mexico has become a middle-income country and by 2050 may be the fifth or sixth largest economy in the world. The answer to China’s “One Belt, One Road” initiative, which seeks to develop strategic infrastructure links between China and other regions in Eurasia, should be an ambitious North American infrastructure project that boosts the continent’s prosperity and solidarity without sacrificing U.S., Canadian, or Mexican sovereignty.
In contrast, the Middle East plays far too great a role in U.S. strategy now. During Cold War I, the dependence of America’s allies in Europe and East Asia on Middle Eastern oil (which was greater than America’s own dependence) made the region strategically important. But deposits of natural gas and light oil, the most likely fuels of the future, are widespread, not least in North America. Jihadist terrorism is a chronic menace but not an existential threat.
It was a catastrophic mistake for the U.S. under Bush and Obama to wage wars of regime change against Saddam and Qaddafi and Assad, who were not significant threats to the U.S., and it is a blunder as well for the U.S. to continue to insist on regime change in Syria. The U.S. role should be that of an “offshore balancer,” intervening to maintain a balance of power among the rival states in the region, as well as peripheral powers such as Russia and Turkey, now on one side and now on another. The U.S. should cautiously and gradually reduce its excessive commitments in the Middle East in order to focus its resources and attention on the long-term geo-economic and military competition with China.
As the two major great powers in the decades ahead, the U.S. and China will have no choice but to work out what in Cold War I was called “peaceful coexistence.” Deep and warm peace among independent great powers is rare in history. But a “cold peace” like that of the 1990s or the temporary détente of the 1970s is a realistic goal.
Nothing lasts forever. Cold War II will come to an end. The questions are: At what cost and on whose terms?