The new Cold War that has broken out between the two biggest superpowers, China and the United States is a crucial aspect of our Marxist perspectives for the world economy, politics and the class struggle. It is different from the old Cold War, which was between two distinctive, incompatible social systems: Stalinist bureaucratic planned economy vs. capitalism.
In the new Cold War, both China and the US are rival capitalist superpowers — they differ only in the form of capitalism. Many mainstream commentators attributed the new Cold War to former president Donald Trump’s ‘America First’ nationalism. With Biden coming into power, some hoped to see an end to the conflict and a return to the pre-Trump ‘normality’.
Trump surely accelerated the process of the US-China conflict, when he started a major trade war in July 2018 and with his frequent use of racist anti-China rhetoric to whip up nationalism as a way to build his populist base. But he did not start the process, and therefore it will not end with him.
In the previous period, US administrations adopted a strategic engagement policy towards China, dating back to Nixon more than 40 years ago. The US ruling class saw China first as an ally against the USSR in the Cold War, in order to split the two biggest Stalinist dictatorships against each other. The Chinese Communist Party (CCP) played a very important role in the collapse of Stalinism on a world scale especially through its role in proxy wars such as the 1980s war in Afghanistan, which became a drain on the resources of the USSR.
In the 1980s, the US supported the CCP’s “reform and opening” restoration of capitalism in order to exploit its vast market and cheap labour. Not even the 1989 Tiananmen Square massacre could stop this close relationship. The US made token protests after the killings in Beijing but wanted the CCP to stay in power to maintain ‘stability’ and keep the vast China working class under control so US companies could freely exploit the non-union workforce.
Strategic divorce
However, US-China relations began to shift decisively after the 2008 ‘Great Recession’. This exposed the deep crisis of US capitalism. It demoralised the pro-US ‘liberal’ sections of the CCP and convinced the most nationalist hardline sections such as the faction of current ruler Xi Jinping that China must put the brakes on economic liberalization and instead focus on its own distinctive governmental model based on a form of state capitalism with undiluted authoritarian rule.
This process of strategic ‘divorce’ became clearer by the second term of the Obama administration. In 2010, Obama initiated the Trans-Pacific Partnership (TPP), a US-led trade pact, and in 2012 the “pivot to Asia” which involved moving 60 percent of US military power into Asia. These strategies were clearly aimed at countering China’s influence in the Asia-Pacific region.
So what caused this change in the relationship? In 2010, China overtook Japan as the world’s second-largest economy. Then, the Chinese ruling class began to unveil its own imperialist agenda with the Belt and Road Initiative (BRI) launched by Xi Jinping in 2013, to spread China’s investments and influence on a global scale, and the ‘Made in China 2025’ program in 2015, to speed up China’s high-tech production capabilities. Also from late 2013, China began to assert its control over the South China Sea by building artificial islands and effectively militarising these disputed waters, which are also the object of overlapping territorial claims by six other countries — Brunei, Indonesia, Malaysia, the Philippines, Taiwan, and Vietnam.
These developments shook the US ruling class. They fear the loss of their global hegemony, starting with the loss of Asia. As Trotsky explained in the Manifesto of the Fourth International on Imperialist War: “… imperialism by its very nature abhors any division of power.”
We describe the Belt and Road Initiative as “imperialism with China characteristics”. China’s emergence as an imperialist power is not mainly about Xi Jinping’s personal ambitions, but is a result of China’s capitalist contradictions. Despite coming out of the 2008–09 crisis in relatively better shape than the West, China’s recovery was based on unprecedented levels of credit for mega-infrastructure and investment projects. This led to the subsequent massive accumulation of debt and overcapacity, which has not been solved to this day. In the first quarter of 2020, China’s total debt-to-GDP ratio reached 317 percent.
“Dual circulation”
Today, Xi Jinping speaks of the need to strengthen the “dual circulation” of the economy, which refers to the internal and external economy. This new term is basically a re-packaging of the old attempt to boost China’s domestic consumption. With economic decoupling from the US and Western countries becoming the trend of developments, China is trying to reduce its dependence on the West, to resist US imperialism’s economic pressure by building up domestic consumption. But low wages, lack of public healthcare and welfare protection, plus high household debt thanks to high property prices, mean the China working class has little to spend, so such attempts have largely been unsuccessful.
China’s household consumption accounted for 38.8 percent of nominal GDP in 2019, behind India and even Indonesia, and only a 0.1 percent increase compared to 2018. This was before the pandemic, which caused consumer spending to decline by 4 percent in 2020. On the other hand, household debt is now 128 percent of household income which is a higher ratio than in the US and Japan. The debt-to-income ratio is now similar in size to the pre-2008 crisis United States. This is in a country where almost half the population, 600 million people, are living on around 152 US dollars a month.
This is why China has to turn towards the other side of the dual circulation — exporting capital and building China’s own economic sphere of influence, which basically means imperialism. This becomes more urgent with the expected decoupling of the China and US economies. The BRI was the start of this process, which we explained in the past was China’s attempt to export capital, overcapacity, and debt to other countries.
The recent signing of RCEP, a 15-nation trade deal that China dominates, is seen as a rival to the formerly US-led TPP. Trump withdrew from the TPP (now renamed the CPTPP — Comprehensive and Progressive Agreement for Trans-Pacific Partnership) in 2017, but Biden might re-enter. Last year, the Southeast Asian bloc ASEAN overtook the EU as China’s largest trading partner. So we see the outline of a China-led economic bloc, although an unstable one with many internal conflicts.
The US-China rivalry began before Trump and it certainly will not stop with Biden. This struggle was never about democracy or human rights. This reflects a wider political shift within the US ruling class and a corresponding shift in the Chinese ruling class. Significantly, the Democrats did not oppose the Trump administration’s broad China policy. Biden’s new Secretary of State, Tony Blinken said right before Biden’s inauguration, “Trump was right in taking a tougher approach to China”, “the basic principle was the right one” and that was “helpful to our foreign policy”.
In fact, Xi’s regime preferred Trump over Biden. Trump prioritized getting a trade deal that would boost his re-election chances; he showed a crude disregard for human rights issues in Xinjiang, the big Muslim region in China, and the Hong Kong democracy protests. From the CCP’s perspective Trump was more likely to be bought off with economic concessions. They fear that the Biden administration will be more “ideological”, that is more skilful in manipulating issues such as democracy and human rights as a cover for US imperialism’s objectives. Biden’s team is putting more emphasis on rebuilding ties with traditional US allies, hoping to create a more stable bloc against China. The US containment policy against China will be more consistent and strategic than under Trump.
Hong Kong crackdown
The Chinese regime is very sober that this conflict will not moderate under Biden. In early January, Beijing launched a sweeping mass arrest of 53 opposition politicians in Hong Kong on charges of “subversion” under the national security law. This included an American lawyer — the timing was precisely chosen to exploit the political disarray in the US. The aim of this latest crackdown in Hong Kong was to wipe out the opposition in the event that the postponed 2020 legislative elections are allowed to go ahead later this year.
Xi’s regime is also worried that Western economies may make a stronger recovery from the pandemic towards the second half of this year, based on the mass vaccination programs in many of these countries. Both in terms of the share of the population vaccinated and the reported efficacy of the Western vs. Chinese vaccines, Beijing is nervous that its relative advantage as the “only major economy to grow in 2020” could evaporate. Rebounding Western economies could increase their pressure on the Chinese regime over economic policies, Hong Kong and Xinjiang. The mass arrests in Hong Kong also came one week after the signing of a major China-EU investment deal, another skilful move by Beijing, aiming to drive a wedge between the US and EU in ‘Three Kingdoms’ fashion. This was a 60-year period in Chinese history when three Chinese states fought each other for supremacy.
It is unlikely Biden will remove all Trump’s tariffs as these can be used to keep pressure on the Chinese regime (Editor’s note: since this was written Biden’s Treasury Secretary Janet Yellen has confirmed that all the Trump tariffs will stay “for the moment”). But Biden could offer to remove some of the tariffs as a negotiating tactic in future. However, he will face pressure from both Democrats and Republicans if he is seen as “soft” on China.
The new Cold War is not a temporary phase; it will be the trend of global capitalism in the next historical period. As Lenin put it, imperialism is the highest stage of capitalism, where capitalism enters a period of great power rivalry in the struggle for markets and raw materials. In other words, imperialist conflicts are the inevitable outcome of capitalism especially in an era of crisis.
The nature of the new Cold War is more akin to the period right before WWI, when imperialist powers Britain and Germany formed rival alliances. The main reasons why we are not facing another “great war” between the two superpowers is due on one hand to the existence of nuclear weapons and on the other hand because no ruling class feels secure in their power; they fear mass revolts if they embark on a major war.
Therefore, we also see some features similar to the previous Cold War — most inter-imperialist conflicts we will see are not fought with military means but with economic, trade and tech policies, but also accompanied by an arms race. When open conflicts — ‘hot’ wars — do happen this will predominantly take the form of proxy wars. This is possible in the South China Sea or Taiwan Strait in coming years. Even a ‘small’ war could be very destructive, dangerous also for the capitalist system, and could have enormous political effects. This could also provoke a massive anti-war movement internationally.
While we may see clearer regional blocs being formed in the next period, the new alliances are likely to be unstable. This is especially true in the Asia-Pacific region, which is the dominant and biggest region for world capitalism. A top Singaporean diplomat said most Southeast Asian countries are not “monogamous” in their diplomacy.
Not different systems
By comparison with the old Cold War, today’s blocs and alliances are not based on fundamentally different systems, but rather reflect the bourgeois national interests of different countries, which can change. Some governments will try to balance between China and the US, or even have their own competing regional imperialist agendas. For example, seven countries, Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam, are members of both the China-led RCEP and its rival CPTPP, which was designed as an anti-China bloc.
China may appear to have scored impressive diplomatic and economic victories over the US in the last period with RCEP and the China-EU deal, and the seemingly unstoppable extension of CCP power in Hong Kong, but these may be more about symbolism than substance. With increased economic contradictions and tensions in the next period, these “victories” may quickly be forgotten and replaced with new conflicts.
The new Cold War may also have implications for mass movements globally. In the absence of a strong working class imprint in some of the movements, the “Cold War” dynamic at play on a world scale can generate illusions in one of the two imperialist blocs as a counterweight to what is perceived as the most immediate enemy. This is reflected in some of the politically confused ideas surrounding the so-called Milk Tea Alliance, with online youth activists in Hong Kong, Taiwan and Thailand (now joined by youth in Myanmar) teaming up to spur each other’s struggles, share tactical experience, but also looking towards the “democratic” US as an ally against the CCP dictatorship and the Thai and Myanmar military regimes.
The context is important: Pro-CCP Chinese internet trolls were active throughout the Thai mass protests last year, supporting the Prayut regime and taunting the democracy protesters. This created a social media backlash by Thai youth and Hong Kong youth that became influenced by a pro-Western narrative.
During WW1, some Irish nationalists fighting British rule developed illusions in German imperialism as a possible “saviour”. As in the imperialist WW1, the working class must not be on any side of the imperialist conflict and must instead take an independent position. In the new Cold War we oppose both Chinese and US imperialism. We support international working class struggle and solidarity to defeat capitalism.
The Chinese state is no longer a bureaucratically deformed workers’ state, nor is there a planned economy to defend. China’s authoritarian state-guided capitalism does not represent a more progressive alternative to Western capitalism. The RCEP and China-EU investment deals championed by Xi’s regime are neo-liberal deals that threaten huge attacks on workers, peasants, nature, and democratic rights.
The working class is the only force that can lead the fight for a truly peaceful world, by eliminating the system that breeds endless wars and conflicts, ecological or virological annihilation, namely capitalism and imperialism.
