The United States and China on a collision course

(New York) Following May’s G7 Summit in Hiroshima, US President Joe Biden said he expected a “thaw” in relations with China. However, despite the holding of several official bilateral meetings – and although the Secretary of the Treasury of the United States, Janet Yellen, expresses the hope of an upcoming visit to China – these relations remain icy.

Nouriel Roubini

Emeritus Professor of Economics at New York University Stern School of Business and Chief Economist of Atlas Capital Team*

Indeed, far from the thaw, the new cold war is becoming more and more icy, and the G7 Summit itself highlighted China’s concerns about the United States applying a strategy towards it. “of containment, encirclement and repression”. Unlike previous gatherings, where G7 leaders have mostly talked and done little, this summit has proven to be one of the most important in the group’s history. The United States, Japan, Europe, as well as their friends and allies have made it clearer than ever that they intend to join forces to counter China.

In addition, Japan (which currently holds the rotating presidency of the group) has taken care to invite several major leaders from southern countries, in particular Indian Prime Minister Narendra Modi.

By reaching out to a number of rising and middle powers, the G7 hopes to convince others to join in its tougher response to China’s rise.

Many will probably agree on the description given, that of an authoritarian Chinese power, practicing state capitalism, increasingly assertive in the projection of its force in Asia and all over the world.

Although India (which holds the presidency of the G20 this year) has adopted a neutral position regarding the Russian-led war in Ukraine, it has long been locked in a strategic rivalry with China, which is explained in particular by the fact that the two countries share a very extensive, largely disputed border. Therefore, even if India does not become a formal ally of Western countries, it will continue to position itself as a growing independent world power, whose interests align more with the West than with China and its allies. de facto (Russia, Iran, North Korea and Pakistan).

India is also a member of the Quadrilateral Security Dialogue (Quad), a security cooperation group that also includes the United States, Japan and Australia, whose explicit goal is to deter China; Japan and India also have a long-standing friendly relationship, and share a history of antagonism towards China.

Japan has also invited Indonesia, South Korea (with whom it hopes for improved diplomatic relations, given shared concerns over China), Brazil (another major power in the South), the president of the African Union Azali Assoumani, as well as Ukrainian President Volodymyr Zelensky.

The message was clear: the “boundless” Sino-Russian friendship has serious implications for how other powers view China.

Going even further, the G7 devotes a substantial part of its final communiqué to explaining how the group will deal with China in the years to come. The document condemns in particular a Chinese policy of “economic coercion”, and underlines the importance of an Indo-Pacific partnership to thwart Chinese efforts to dominate Asia. It criticizes Chinese expansionism in the East as well as in the South China Sea, and includes an unequivocal warning against any Chinese attempt to invade or attack Taiwan.

Taking steps to “de-risk” their relations with China, Western leaders are applying language only slightly less aggressive than that of “dissociation”. The change, however, is not just about diplomatic jargon. According to the press release, Western containment efforts will be accompanied by a policy of engagement with the countries of the South, through major investments in the energy transition, in the face of the risk of seeing certain key countries being drawn into China’s sphere of influence.

No wonder China couldn’t contain its anger at the G7. As well as taking place alongside a Quad gathering, the Hiroshima summit comes at a time when NATO is beginning its own pivot to Asia, while the AUKUS alliance (which brings together Australia, United Kingdom and United States) is preparing to face China in the Pacific.

Technological and economic warfare

At the same time, the technological and economic war between the West and China continues to escalate. Japan imposes restrictions on semiconductor exports to China, as draconian as those put in place by the United States, and the Biden administration is pressuring Taiwan and South Korea to do the same . In response, China banned chips made by US-based Micron.

With American chipmaker Nvidia quickly becoming a business superpower – due to the explosion in demand for its advanced chips that power artificial intelligence (AI) applications – it too can expect further restrictions on its sales in China. American leaders have made clear their intention to keep China at least a generation behind in the race for AI supremacy. THE CHIPS and Science Act adopted last year introduces massive incentives aimed at repatriating the production of microchips.

There is now a risk of seeing China, struggling to make up for its technological gap with the West, exploiting its dominant position in the production and refining of rare earth metals – essential for the ecological transition – in retaliation against the US sanctions and trade restrictions. China has already seen an explosion in electric vehicle exports of around 700% since 2019, and is now starting to roll out commercial jetliners to compete with Boeing and Airbus.

So while the G7 may seem to have succeeded in deterring China without leading to an escalation of the Cold War, the perception in Beijing suggests a failure of Western leaders to strike a balance.

Today it seems more evident than ever that the United States and the West intend resolutely to contain the rise of China.

Of course, the Chinese tend to forget that the current escalation results as much, if not more, from their own aggressive policies as from American strategy. In a recent interview on the occasion of his 100^e anniversary, Henry Kissinger – craftsman of the US “opening up to China” strategy in 1972 – warns that unless the two powers reach a new strategic understanding, they will remain on a collision course. The harder the ice, the higher the risk of it cracking violently.

*Copyright: Project Syndicate, 2023