In 2019, when the coronavirus has not yet inflicted a powerful blow to the global economy, the trade war between the economic giants No.1 and No.2 cost the world more than 1% of GDP. The coronavirus pandemic has shoved the problems of US-China relations into the shadow, but only for a short time.
The current US-China relationship is increasingly reminiscent of the Cold War between US and the Soviet Union. The United States has taken a tough stance on China’s territorial claims in the South China Sea, is considering sanctions in response to Chinese authorities’ expansion into Hong Kong’s political system, keeps pressuring Huawei, this time denying US entry to their employees, and even closes the Chinese consulate in Houston.
More and more states are involved in the confrontation with China. TikTok and dozens of other Chinese mobile applications are already blocked in India. Australia is facing economic sanctions from China in response to calls to investigate the sources and course of the pandemic.
A milestone event was the decision of the British government to exclude Huawei’s participation in the development of 5G networks in the country. The European Union may be the next.
The Chinese authorities, for their part, declare their commitment to take retaliation measures.
It seems that the moment is coming for a more active reset of European-Chinese relations. The UK is due in no small part to it.
Five years ago, London’s relations with China were the most trusting among all the G7 countries, with prospects for Chinese participation in the construction of the British nuclear power plant, growth of British exports to China, and influx of Chinese technology and investment into the industrial revival of the north regions of England.
Recent polls show that in the UK, 60-80% of respondents do not trust China. The ban on Huawei’s participation in the development of 5G was a logical continuation of the growing mistrust within the country and pressure from North American partners.
The United Kingdom, which used to set the vector for moderate and pragmatic cooperation with China for the EU, is now on the path to rethinking their relations. In contrast to the potential benefits of trade and Chinese investment, European countries face national security concerns, technology leakage, copyright infringement, and a growing trade deficit – making them similar to America’s claims.
There is also a significant difference in regional approaches – countries such as Poland, the Czech Republic, Hungary and Italy have until recently tried to advocate closer rapprochement with China in the hope of gaining economic benefits, especially in the form of Chinese investments.
However, the actual inflows of Chinese capital into the Eastern and Central Europe are still far from expectations and insignificant compared to the financial infusions of the EU itself. Just like in the Great Britain, distrust of China is growing in European society.
The escalation of the US-China confrontation remains one of the key global threats that could have a major impact on the world economy and financial markets. While neither side is interested in such an escalation, the situation is such that the more controversy escalates, the more likely the conflict would break out at any of the hottest areas of common interest, be it Taiwan, Hong Kong or cyber technology.
Both the United States and China are rapidly moving toward further economic and technological separation, involving the rest of the world. There is no reason to expect so far that this process can be reversed or at least stopped.
What can really change is the role of the European Union. If the Republican administration’s tough talks about European allies are a thing of the past, the United States and the European Union may become much closer. Even with a much more moderate EU approach, the US position in the confrontation with China in this case could be significantly strengthened, marking a new polarization of the world. The confrontation between China and the West could last for decades and survive many changes of government.