The tension between the two biggest economies in the world just escalated again, after the U.S. office recently ordered that the Chinese consulate in Houston must be closed, to protect American intellectual property. Foreign ministry spokeswoman Hua Chunying wrote on Twitter that China would “surely react with firm countermeasures.”

Chinese Covid-19 cyber spies

The catalyst for this order is stealing details of coronavirus vaccine research by two Chinese hackers. The latest footage showed firefighting vehicles around the consulate and a fire in the courtyard at the center of the building. According to the Wall Street Journal report, it is common when embassies and consulates are closed that the documents are burned, but it is still not confirmed if that is the case.

Coronavirus and Trade War

With the coronavirus massive spread through the USA, Trump, and his staff had to find someone else to blame, and if was naturally by pointing China. A Hong Kong virologist Li-Meng Yan told “Bill Hemmer Reports” that the Chinese government knew about the virus weeks before they published the news about the outbreak

There are claims that scientists from the Wuhan Institute of Virology defected to the West to build a legal case that the virus came from a lab. The U.S. government repeatedly claimed that the coronavirus was made in a Wuhan lab, even though there is no such proof. China rejected the accusations, both for hackers attack and the deliberate outbreak of the virus. Chinese ambassador to Britain Liu Xiaoming said that “in this battle against the virus, solidarity and cooperation are the most effective weapons”, pointing out the importance of guarding against “political virus”. 

At the beginning of July, two U.S. aircraft carriers and a few warships performed exercises in the South China Sea, which waters mostly belong to China. On July 13, 2020, U.S. Secretary of State Mike Pompeo said that “the world will not allow Beijing to treat the The South China Sea as its maritime empire”. The next day spokesman of China’s Ministry of Foreign Affairs Zhao Lijian said that the statement “violates and distorts international law, deliberately provokes maritime and territorial disputes, damages regional peace and stability, all of which is irresponsible.”

But the “conflict” started much before. The trade war between the USA and China dates back to President Trump’s first election campaign when he accused China of selling the U.S. more than the country purchased. After the win, Trump decreed several punitive tariffs on Chinese goods and China retaliated. 

Different Views on Democracy

Last May, China made an addition to the Basic law that decreases the freedoms of very autonomous city-state of Hong Kong, banning the “treason, secession, sedition and subversion against the Central People’s Government”. People are worried that their freedom to protest can be seen as a violation of the Basic law “improvements”.

China is trying to take over territory at the Indian border, as well. Even though diplomatic talks to resolve the territorial issue are held, Indian officials say that there were at least 20 Indian soldiers killed in that area. Chinese officials accused India of crossing the border and attacking its personnel.

China is trying to “resolve” Taiwan issue by military attacks. That is how Taiwan’s foreign minister sees China’s frequent military exercises simulating an attack on Taiwan. The sides split in a civil war in 1949, bit China still claims that Taiwan is a part of their territory. 

Taiwan is seeking international support and allies, and they see one in The U.S. because of their law which says that “the United States will make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain sufficient self-defense capabilities”. The quantity and the nature of such defense is to be determined by the President and Congress.

Seeing what is happening around the borders of China, U.S. government published a report stating that the Chinese Communist Party (CCP) is trying to develop a “world-class military” by 2049, through Military-Civil Fusion (MCF). Their goal is to eliminate the barriers between “China’s civilian research and commercial sectors, and its military and defense industrial sectors”. That would be just fine, but China’s means are not. “The CCP is implementing this strategy, not just through its own research and development efforts, but also by acquiring and diverting the world’s cutting-edge technologies – including through theft – in order to achieve military dominance.”

Besides problems alongside the borders, in the region of Xinjiang human rights are being violated. Women are forced to be sterilized or use contraceptive devices to limit the population of Muslim Uighurs, new research showed. Uighur people are already kept in “re-education” camps. At first, China denied their existence, but then admitted that those camps are necessary to measure against terrorism. BBC had a rare opportunity to talk to people inside the camps. They were not convicted of a crime and they couldn’t practice their religion. It is believed that more than a million Muslims are held in those camps.

Expulsions of Journalists and Students

For years, the U.S. declared Chinese media outlets as foreign embassies. Only in February, the Trump administration decided to act on such declaration – three Chinese journalists were deported back to China. After that, Trump administration made an act limiting the number of Chinese citizens who could work for Chinese news organizations in the United States.

China answered by expulsions of journalists from prominent U.S. media houses such as The New York Times, The Washington Post and The Wall Street Journal.  

In May, the U.S. government considered canceling visas of graduate or higher-level students in their country, who had anything to do with Chinese military institutions. Universities all over the USA raised their concerns because they depend on tuition fees paid by Chinese students. The scientific community is afraid that China could do the same and that would be a major decline point of progress.

Market Impacts of the economic war between USA and CHINA

Both economies depend deeply on one another. A lot of U.S. companies have production of at least some parts, if not all of their products in China. The latest issues between countries had a little market impact, but some experts say that they see the potential for a “market pullback of more than 20%”.

For many years, China has been seen as the “world’s factory”, said Jimmy Chang, chief investment strategist at Rockefeller Asset Management. If the trust between two economies is lost, that trend is going to reverse. And that must have some influence on the supply chain, pricing, and inflation.

American multinational investment bank Morgan Stanley studied the potential impact of decoupling of the two economies in several industry sectors. They stated that eleven sectors will feel bad consequences, such as many challenges to business operations. Those are global auto and component makers, global transportation and aerospace, global capital goods, U.S. IT hardware and internet, and U.S. and Asian semiconductors.

Unlike those sectors, thirteen sectors such as pharmaceuticals, chemicals, biotechnology and medical technology, beverages, and luxury goods, as well as U.S. banks and insurance companies, will benefit from the distancing of U.S. and China.

Experts conclude that the transition will hurt some companies, but help others. Also, some countries like India or Indonesia could benefit from the move of the supply chain.

Is it really a new cold war?

Day by day, the situation is becoming tenser. Even though the two countries still have considerable economical connections, they could deteriorate quite soon. With the November election campaign, China’s issue is even more in the spotlight. Promises are made and both sides want to show that they can resolve the issue. 

An assistant professor at Georgetown University, Oriana Skylar Mastro said in an article of The Economic Times, that it would be dangerous to call this a new Cold War. She said that Washington sees Beijing as an ideological threat, and that Beijing misunderstands the drivers of U.S. policy thinking that the U.S. is “responding to its own decline in power — that no matter how Beijing acts, the US will lash out”.

The founder of the investment management firm Bridgewater Associates Ray Dalio said in a Linkedin post that the U.S. and China could get from economic to a shooting war. He compared 1930s circumstances from economic crises leading to World War II, with today’s tensions between the two biggest economies. 

“Severe economic downturns with large wealth gaps, large debts, and ineffective monetary policies make a combustible combination that typically leads to significant conflicts and revolutionary changes within countries,” he wrote.

USA VS CHINA: What Will Happen After the Next U.S. Elections?

It seems that after the U.S. elections in November, the decoupling will get even worse. Whether Trump or his opponent Joe Biden win, the result will be the same. They both consider China’s issue should be managed strictly, but Biden said that the president is not being tough enough. 

Could China influence the election, just like Russia did in 2016? No one is really certain, but the eyes are on TikTok video-sharing app, which has been downloaded more than 110 million times in the U.S. alone. Politicians, both from Democratic and Repulic Parties, say that “is a potential counterintelligence threat we cannot ignore”, even if TikTok has banned all political advertising from its app.

Donald Trump has just announced to journalists that he intends to ban the Chinese video application from the US territory. Tik Tok is seen as a threat to national security in the context of the coming 2020 US Election : the data collected could be used by the Chinese government for espionage as well as for influencing the votes.

The firm would have even gone so far as to offer to publish its source code and offer numerous guarantees to remain active in the United States.

Despite this, Donald Trump wants to ban the application and is looking for a way to get there. If some question the president’s ability to ban such an application, he simply replied “well, I have that authority”. According to observers, it is an economic emergency law that would allow the president to take control of the issue.

Don’t forget the 3rd player, Russia

We could be facing another Cold War with all its tension made on the entire world. But, there is a huge and terrific difference – it is combined with pandemic (of the virus and the fake news), China’s soft power increase and a technology war

Russia has played the role of an bystander, not wanting to be “played as a card by either China or the United States”, said Konstantin Zatulin, deputy chairman of the State Duma’s committee for relations with the Commonwealth of the Independent States and Russian nationals abroad.

Nevertheless, they may use the situation and their position to gain international influence, because they are valuable ally to both China and the U.S.

By George