More than three decades ago, the first Cold War ended with the euphoric toppling of the Berlin Wall as the people of the Eastern Bloc declared their freedom from the Soviet Empire. With even China and Vietnam pursuing market reforms, the stage appeared set for a utopian world of free trade, peace and laissez-faire capitalism. The end of history had arrived.

Just slightly three decades on in 2020, however, analysts are now proclaiming — not without some controversy — that the Cold War has returned. Where once lurked the Russian bear, now stands the Chinese dragon awoken from its centuries-long slumber — and it is in a foul mood as it engages in more snarls with the US.

On July 23, the US, accusing China of intellectual property theft, ordered the latter’s consulate in Houston to be shut. The next day, China retaliated, ordering the same on the US’ Chengdu consulate. This tit-for-tat move is but the latest friction point between the two.

Alan Chamorro, Asia Pacific partner at political risk firm Control Risks, observes that the previous cooperation-based US-China relationship that lasted for four decades has given way to a default state of rivalry between the two great powers. They now see each other as an existential threat instead.

“In an epoch-defining clash for global leadership, the world’s two major powers are wrestling for strategic advantage in an increasingly bitter contest to determine which of them will be the pre-eminent state of the 21st century,” writes Cognoscenti Group CEO Alan Dupont in a white paper for the Hinrich Foundation entitled “New Cold War: De-risking US-China conflict”. While the conflict is like the “first Cold War” strongly driven by ideological contestation, this quarrel manifests less in the geopolitical realm (for example, proxy wars) than in economic disputes.

Now, it is precisely the strong economic dimension of this contestation that could potentially make the second Cold War more economically damaging than the first. Speaking on a panel at a webinar organised by The Economist Intelligence Unit (EIU) entitled “Navigating the New Cold War: US-China trade, tech and geopolitical conflict”, Dupont warns that US-China economic decoupling could lead to a more closed and less prosperous global economic order — one that is defined by fractured supply chains, reduced international cooperation and stronger protectionist tendencies. In the first Cold War, a liberal free trade order could coexist with closed command economies in parallel systems.

It is easy to blame the protectionist and unilateralist impulses of US President Donald Trump as the cause of these growing tensions. All eyes will be on the US presidential election in November. Some observers are hoping that a victory for Democratic candidate Joe Biden would bring greater stabilisation to increasingly acrimonious ties between the two great powers.

Yet experts are warning that a Biden presidency would not only fail to resolve the deep structural tensions that define the US-China relationship, but in fact, could even sour it further.

“Biden is under pressure to perhaps take an even harder stand on China from the human rights perspective, certainly from the Left of the party,” explains Dupont.

One of the few issues of bipartisan agreement within a polarised US political landscape is the need to get tough on China: the US China lobby has all but disappeared. Dupont even suggests that Trump’s tariffs were necessary moves to curb China’s protectionist excesses, with the Made in China 2025 policy a cause for particular concern among Western governments as China seeks to cultivate “national champions” in the technology sphere.

Fellow panellist Chamorro also notes that Democratic constituencies like Big Labour could also steer Biden towards a more hawkish China policy. Biden is also seen as having the sense to build a more competent foreign policy team around him to manage foreign affairs in the Asia Pacific, which would be a welcome contrast to the erratic patterns shown by Trump. “I do think that if you had a Biden presidency, then it would be a more predictable one,” he says.

Yet considering the former Vice-President’s personal antipathy towards Chinese President Xi Jinping — once even calling him a “thug” on national television — such a development might not necessarily benefit China.

Officials in Beijing have even admitted that they would actually prefer another four years of Trump due to his disengagement with US allies. With Biden more likely than not to renew ties with US allies, the formation of a “united front” of Western states and US allies against Beijing could potentially worsen China’s international position.

Consequently, businesses will have to evaluate success based on new criteria to reflect the new business landscape. While efficiency and speed were once the name of the game, businesses will likely give greater priority to resilience and risk reduction as the world grows more uncertain. Firms will likely look to diversify supply chains and ring-fence them to avoid supply chain risks associated with US-China decoupling, though the sheer prevalence of globalisation means that decoupling is more likely to resemble a partial separation than a full-blown divorce.

Chamorro thinks the best way for firms to cope with the new political landscape is by adopting what he calls “The Three Gets” — a play on the “Three Represents” popularised by former China leader Hu Jintao.

First, firms must “Get Understanding” about China and the rapid changes affecting its political landscape. From there, it must also “Get the Best Governance” in terms of compliance with government regulations; and last but not least, “Get Resilience” against the increasing likelihood of geopolitical shocks during this period to survive the increasingly uncertain political landscape of the “New Cold War”.

“Quite often we see our clients not really understanding either China if they are operating in China, or if they are a foreign party operating in the United States or other markets,” says Chamorro, who also advocates that businesses understand societies at a local as well as a national level. Growing global instability has seen geopolitical concerns topping the list of CEO concerns in a World Economic Forum global CEO survey in Davos as early as 2016. With geopolitical developments often affecting businesses at the local level, businesses must complement macro-level geopolitical awareness with a deep knowledge of local power risk factors as well.

Such mastery is especially crucial in a large post-Communist economy like China — political interests are often entwined with economics and local power brokers have the ability to make or break the fortunes of a particular business across different regions. The Leninist political structure of the Chinese government can often lead to a degree of opacity in terms of business regulations. Insider knowledge, says Chamorro, is often crucial to understanding how the government wishes to deal with business to avoid stumbling unwittingly into non-compliance.

With such understanding, firms should then work to develop the best governance available to them. On a basic level, this includes ensuring compliance with all government regulations and requirements; yet Chamorro cites a colleague in saying that “compliance is what you must do by law and regulation, and governance what you hope to do” beyond stated legislation. Rising political tensions have seen firms increasingly unable to avoid taking a position on political issues, whether it be implementing sustainable business practices to fight climate change or taking a knee with #blacklivesmatter to comply with the verdict of the court of public opinion.

“The trick with governance is that it is highly subjective. If you were sitting in Beijing it looks like one thing, and if you are sitting in Washington DC, or Frankfurt or Singapore, it looks like something else,” says Chamorro. Pleasing everyone is often difficult, if not impossible: support or denunciation of the Hong Kong protests, for instance, is likely to antagonise either China or the US. “The other thing is that it is a moving target — it changes every week, sometimes daily,” warns the Control Risks analyst, requiring firms to constantly adapt to the new political situation.

#Blacklivesmatter is a case in point. As it was seen as controversial during its initial wave, firms distanced themselves from the movement to the point that NFL teams refused to recruit American football quarterback Colin Kaepernick after he “took a knee” during the US national anthem to protest violence against African-Americans. Yet the second wave following the death of George Floyd was met with widespread corporate support from businesses like Apple and somewhat ironically, L’Oreal. Multiple NFL teams have shown interest in signing Kaepernick again.

To navigate this treacherous environment, firms must exhibit resilience as they are increasingly forced to choose between the US and China on certain issues. While no business really wants to choose between the two biggest markets in the world, Chamorro argues that the only thing they can do is to understand and live with the repercussions of their decisions and help firm stakeholders navigate the difficulties they may consequently face. “Resilience is a bit like a muscle — you practise it and you get better at it,” remarks the political risk consultant.

Singapore has typically sought to have its cake and eat it too vis-a-vis great power relations. It maintains a non-aligned posture towards foreign affairs that emphasises good relations with both Washington and Beijing.

Unfortunately, Singapore found itself entangled in between the two. On July 24, the US Department of Justice said that Dickson Yeo June Wei, who was a PhD candidate at the National University of Singapore’s Lee Kuan Yew School of Public Policy, had pleaded guilty in the US for acting as an illegal agent of China. Yeo had been trawling LinkedIn to recruit US citizens with access to non-public information. Yeo faces up to 10 years’ jail in the US.

Singapore Prime Minister Lee Hsien Loong has been actively making the rounds at international forums emphasising Singapore’s desire to not have to take sides despite growing US-China acrimony. “We all have good relations with China, we all want good relations with China in Asia, but we also all have very deep relations with the United States, and want to keep them at the same time, and maintain that balance,” said Lee on July 28 at a dialogue organised by the American think-tank, Atlantic Council.

But how realistic is this approach in a New Cold War?

Chamorro acknowledges that Singapore and other third countries could potentially benefit from trade diversion as supply chains are re-routed to avoid China, with Japanese suppliers, for instance, shifting supply chains to South Korea due to their symbiotic ties with the US. Singapore, he adds, benefits from its pivotal position within global trade and finance, meaning that similar to Switzerland in Europe, it will rarely be forced to choose sides. Most other countries, unfortunately, are unlikely to have the same luxury of neutrality.

In fact, like Switzerland, which profited handsomely from trading with both sides during the two World Wars, Singapore could well benefit from being a neutral financial centre between the US and China.

Gregor Gregersen, founder of precious metals firm Silver Bullion, notes that Singapore could become the world’s most important gold market as a trusted and neutral jurisdiction close to high-growth Asian markets. For the same reason, Singapore could also become a hub for dispute resolution and legal arbitration due to its strong legal framework.

Nevertheless, with the rest of Asia likely to be implicated in questions of great power rivalry, Singapore business leaders will have to brush up on their knowledge of Asia to better navigate this emerging centre of US-China contestation. Yet there are fears that many young Singaporeans are apathetic about global affairs. Business leaders lament that local workers lack knowledge about Southeast Asia, while an opinion poll by the Association of Policy Affairs student organisation revealed gross apathy among young people about Singapore’s immediate neighbourhood.

Fortunately, the Singapore government is increasingly aware of the need to train a new generation of global-ready business leaders. It has introduced a greater Asean focus into school curricula and provided more opportunities for students to enjoy overseas exposure to China, India and Southeast Asia. Should such policies succeed and gain widespread traction, Singapore businesses may well be ready to thrive in the New Cold War.

Businesses must prepare for a New Cold War that could be worse than the last

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