The US-China Trade War is Steering the World into the Unknown

“New U.S.-China Tariffs Raise Fears of an Economic Cold War,” proclaimed a Washington Post headline. The New York Times alleged that the United States and China were already “on the cusp” of such a “new Cold War.” Driving this hysteria was the Trump administration’s Monday announcement unveiling tariffs on an additional $200 billion of Chinese imports, followed nearly immediately by a Chinese promise to retaliate. This back-and-forth has been ongoing since January, and a resolution does not seem anywhere close, if one’s even possible.

As the U.S.-China competition expands across multiple domains, there are even worries that trade tensions could, over the long term, make the prospect of a military confrontation between the two more likely. Which raises the urgent question: How does this end?

It’s perhaps simpler, and certainly more rhetorically arresting, to predict a new Cold War, resulting in a global economy split between two power centers. But the reality of where Washington and Beijing are most likely to arrive in the next decade is far more complex. The United States and China are forging a new, uncharted gray area—not quite the economic bifurcation that characterized the U.S.-Soviet relationship at the height of the Cold War, but far from the high degree of interdependence seen in the early-21st century. Broad U.S. support for a harder economic line on China, a complicated domestic political landscape within China, and both countries’ recognition of the need for a healthy diversification of their economic relations will likely mean a new kind of relationship for the United States and China—and, by extension, a potentially new backdrop for the order of our world.

While tariffs are undoubtedly a distinctly Trumpian weapon, politicians on both sides of the aisle generally agree that China’s habitual intellectual-property theft, forced technology transfers, and joint-venture requirementssignificantly impair the future health and competitiveness of America’s leading businesses. In 2014, President Barack Obama delivered public comments lambasting China’s approach to intellectual-property protection and state-owned enterprises. Just this March, Senator Elizabeth Warren noted that the past two decades of U.S. policy, which sought to engage China in order to secure concessions on market access for U.S. companies, was misguided. Senator Chuck Schumer has publicly said that one of the only Trump policies he supports is the administration’s tougher China approach.

So although key constituencies, such as the U.S. Chamber of Commerce, argue that tariffs are an inappropriate tool to prosecute the trade war, it is clear that a change in administration will not substantially diminish America’s appetite for systemic change in the economic relationship. In other words, the dispute predated and will outlast Donald Trump. The conventional bipartisan wisdom that dialogue with Beijing can change China’s approach has been shattered. It’s clear now that there’s no returning to the status quo ante.

Further complicating matters for Beijing is dissent within China’s elite about China’s future economic model. Chinese Communist Party (CCP) propaganda continues to depict U.S. demands as synonymous with a broader containment strategy designed to stymie China’s rise. However, many of the privatization reforms demanded by the U.S. are goals identified in China’s own official planning documents issued in 2014, but that President Xi Jinping has failed to meaningfully implement.

Rhetorically, China’s state media gives lip service to continued “reform and opening.” But this year’s 40th-anniversary celebration of Deng Xiaoping’s signature economic initiative has been whitewashed to venerate Xi and his late father.

Privately, some Chinese scholars and elites dismayed with Xi’s strong focus on preserving the state’s role in the economy have told me they are cautiously supportive of Trump’s trade war, as they see America’s ire as their only recourse to pressure Xi to return to market liberalization. A burgeoning middle class in China, increasingly college educated, will seek service-industry jobs created primarily by China’s private sector.

Therefore, although Western onlookers might only see U.S. demands as the key factor pushing China to make concessions in the trade war, it is critical to remember that the Communist Party must grapple with potentially precarious internal dynamics of its own at home.

Domestic politics in both the U.S. and China suggest that in the coming years, pressures for China to continue market liberalization will not subside. However, given the opacity of the CCP’s decision-making process, it is far from guaranteed that China will continue following its own self-ordained path of “growing an open global economy.”

Meanwhile, the theatrics of the ongoing trade war will discourage Beijing from making public concessions. Xi can’t back down, lest he contradict his own calls to achieve the “great rejuvenation of the Chinese nation,” which will stand in stark contrast to its century of humiliation. But the CCP’s fear of public derision and the Trump administration’s conviction that trade wars are “good and easy to win” do not automatically spell economic decoupling. Indeed, China’s move up the manufacturing value chain, a trend that began well before Trump took office, could aid strategic stability by encouraging a gradual diversification of economic ties between the United States and China.

At present, U.S. businesses remain vulnerable to China’s coercive economic measures, which have previously targeted U.S. allies including South Korea and Japan. Limiting China’s ability to critically impair the United States’ economic well-being could curtail opportunities for future tension in the bilateral relationship. Leading Chinese thinkers are certainly advocating for the inverse. After the Trump administration decided to place an export ban on ZTE—barring China’s national champion from purchasing critical components required to manufacture its high-end products until Trump eventually reversedhis decision—Xi issued a clarion call for Chinese businesses to accelerate efforts to achieve indigenous chip production, which would limit the effectiveness of future U.S. export bans.

In the end, a U.S.-China trade war seen to its distant conclusion—and shaped by those who dissent from both Trump and Xi—will create something distinctly different from the previous bilateral economic relationship. But that does not mean that economic decoupling, and the grave Cold War comparisons associated with it, is the logical conclusion of the trade war. What is far more likely is that both the United States and China will protect high-value technology critical to their national interests, develop supply-chain redundancies, and continue economic networking with emerging middle powers in Southeast Asia and sub-Saharan Africa. In the long term, it remains possible for both the United States and China to achieve a healthier diversification of economic connections that will forge a path to a distinctly new and more stable economic order.