Strategic analysts have started worrying about a new “Cold War” between the United States and China. There is of course a lot that has happened and is happening to suggest that relations between the world’s No.1 and No. 2 nations are no longer as good as they used to be. But Indian analysts and policymakers would be foolish to rush to the conclusion that these relations have reached a point of no return. There is no gainsaying the fact that China’s recent emergence as both an economic power and a nation capable of exerting political influence has sharply altered global power dynamics for the first time since the end of the Cold War. Particularly in the Asia-Pacific, the ascent of China, following the collapse of the Soviet Union and Japan’s relative decline, has altered the Asian balance of power. China is both an economic competitor and a potential strategic rival to the US, but also an important bilateral economic partner and an ally in dealing with various American headaches like Afghanistan and North Korea. Clearly, both India and Japan must watch very closely the changing dynamics of the US-China relationship.
While the US and Japan have been hit rather severely by the current global economic slowdown, China has continued to register near double-digit growth, driven by high levels of public and private investment and exports. While the current sizes of the Japanese and Chinese economy are roughly comparable at $5 trillion, China is expected to emerge as the undisputed second largest economy in the immediate future. Bilateral trade issues between the United States and China, particularly with regard to currency valuation and access to the Chinese market, are reminiscent of disputes between the United States and Japan in the mid-1980s. However, learning from the Japanese experience, China is steadfastly resisting US pressure to enter into a ‘Plaza Accord’ to let the renminbi appreciate. Unlike Japan, China is not beholden to the US for its security, which allows it to be uncompromising in safeguarding its commercial interests.
The high level of interdependence, manifested in sharply increasing trade volumes, makes conflict an expensive proposition. China has emerged as the United States’ largest trading partner, with bilateral trade in 2010 estimated at $459 billion. Corresponding figures for US-Japan and Japan-China trade are estimated at $190 billion and $230 billion respectively. It is the complementary nature of trade flows that enhances the level of interdependence. Despite recent changes in the composition of global supply, China remains the single most important source for low-value-added goods to both the US and Japan, while serving as the largest market for exports from the latter. Disrupting the present arrangement would sharply increase transaction costs for all parties.
China’s recent political relations with both the United States and Japan are characterised by suspicion, bordering on hostility. While there has been no overt aggression between China and Japan following WWII, territorial disputes remain unsolved. The United States has been watching the steady increase in China’s military capabilities with growing unease, while China bristles at the US presence in the Pacific, an area it has long considered its backyard. A new Cold War between the US and China may seem inconceivable for now, but the tensions between them are palpable. Differences over hotspots such as Iran and North Korea could still trigger tensions. Keeping one’s eyes open even while shaking hands with all around would be a good idea.
