As China continues to grow in national power and becomes more assertive on the international stage, we see increasing U.S.-China rivalry in not only economic but also military and diplomatic aspects. However, unlike the previous Cold War, where the two camps were very much divided right from the start and had little ties with each other economically, militarily, and diplomatically, the current international arena is highly interconnected. Division into two camps as per the previous Cold War is not an easy task, and thus strategies and tactics which worked in the past may no longer be feasible.
With the closed nature of the Soviets and its allies, the United States was able to develop itself and its allies, encircle the Soviets and its allies, and basically wait for them to implode and collapse. Free trade and capitalist markets with common diplomatic efforts and military cooperation helped the United States forge strong bonds with its allies and friends. Back then, the United States enjoyed strong economic, military, and diplomatic ties with its allies and friends.
But today, the situation is drastically different because of China's integration into the global economy. Unlike the Soviet Union, China's economy is highly integrated with the rest of the world, and is a major trading partner for many countries. In fact, China is the largest or second largest trading partner of most U.S. allies and friends. Thus, while U.S. allies and friends enjoy strong military interoperability and share common diplomatic goals with the United States, it is not feasible nor practical for them to isolate themselves economically from China.
Why? Because any such move will impact their own economies. Reducing trade with China means these countries need to find new partners from which to import goods and export products. Given the enormous proportion of their economies propped by Chinese trade, the only feasible partner to absorb this increase is the United States. But in the short term, it is not possible for the United States to ramp up its production capabilities to provide the goods being imported by these countries. And the United States will be hard pressed to increase consumption to absorb the products being exported by these countries.
Also, in the long term, it will mean a shift in the U.S. economy toward investing more in primary and secondary industries to export goods lower down in the value chain to these countries. Currently, a lot of the exports from China are further down the value chain, even though China is working hard to move up that ladder. To replace China as a trading partner means producing more of such goods. This will impact the U.S. economy in the long run as the economy moves relatively down the value chain. And is not something that may be good for the United States in the long term.
And if the United States cannot replace China's share of trade with its allies and friends, it is hard for these allies and friends to adopt hard positions against China militarily and diplomatically. After all, any such move can expect economic retaliation. Unlike the previous Cold War, when U.S. allies and friends were buffered from Soviet economic retaliation, China's economic retaliation can wreck havoc on smaller economies. China's potential for growth, with a population more three times that of the United States, coupled with its economy already being an integral part of the global economy means any strategy that seeks to band together and isolate China militarily and diplomatically is going to be met with less than enthusiasm among U.S. allies and friends.
The implication is that the old strategy of military and diplomatic cooperation to coerce China into playing by established rules is not going to work. If the United States wants China to play by established rules, it will need to find another strategy that takes into consideration China's economic influence on U.S. allies and friends. A strategy that won the last war is not a winning strategy forever. Any strategy must be crafted with the current situation in mind.
