Scroll to the top
Season 1

Episode 5: A new Cold War? Tensions rise between US & China

Illustration of space vehicles, planets, and abstract shapes

Transcript: Season 1, Episode 5: A new Cold War? Tensions rise between US & China

Ian Bremmer: We have very different systems, the United States and China, but we actually have a great deal of interdependence, so that we know that the only thing that would be worse than China succeeding would be China failing.

David Bailin: As we see decoupling take place, we’re seeing markets that are literally bifurcating, there’ll be an East and a west market for certain goods and services. There’ll be competition between the East and the West , the U.S. and China, and its allies in both cases, that’ll take place.

Caitlin Dean: Welcome to Living Beyond Borders, the podcast from Citi Private Bank and GZERO media that examines the risks and opportunities in our rapidly changing world from global politics to economics and what it all means for you.

I'm Caitlin Dean, head of the financial and professional services practice at Eurasia Group. And odds are either you or your kids have heard some of these before:


How to get any girl's attention at a party. Quick glance, smile. Look at a friend, take a drink, look away and bring ‘em back.

Ok I’m bored in the house and I’m in the house bored. Bored in the house and I’m in the house bored.

Chicken wing, chicken wing, hot dog and baloney. Chicken and macaroni. Chilling with my homies.

Caitlin Dean: Those are videos that have gone viral on Tik Tok, the China-based social media platform that allows users to make and share short videos.

As it turns out, Tik Tok became a big geopolitical flashpoint this year. Back in August, President Trump issued an executive order demanding Tik Tok’s parent company—ByteDance—sell off its U.S. operation. He cited security concerns over the company sharing data with the Chinese government.

Tik Tok is just the tip of the iceberg for the issue we’re going to talk about today. Have you heard of Didi? That’s a ride sharing service like Uber. Renren? Kind of like Facebook. And, of course, Alibaba—an Amazon alternative. All of them come from China. And if those companies—and the Chinese government—have their way, you may see them in a lot more countries soon.

Henry Kissinger said the U.S. and China are at “the foothills of a new Cold War.” If that’s true, the smartphone in your hand might become a weapon on the frontline.

Let’s talk about it.

I’m joined now by Ian Bremmer, President of Eurasia Group and GZERO Media. And David Bailin, Chief Investment Officer at Citi Private Bank. Hello, Ian and David. Welcome.

Ian Bremmer: Thank you, good to be with you.

David Bailin: Pleasure to join you today.

Caitlin Dean (02:45): Ian, let's start by defining the term decoupling. Can you give our listeners a brief sense of what that actually means and where the two nations are in the process?

Ian Bremmer: Well, when we think about globalization, which is the primary driver of the growth in the global economy over the past decades, we're talking about goods and services and people and capital and ideas and data moving faster and faster across borders around the world. And particularly tying together the world's two largest economies, the United States and China.

It's not like the Americans and the Soviets where, we were fighting each other and we did very little business together. We have very different systems, the United States and China, but we actually have a great deal of interdependence, so that we know that the only thing that would be worse than China succeeding would be China failing. And the Chinese ultimately feel the same about the United States.

A process of decoupling is one by which that interdependence starts to be proactively undone. And so there is less win-win and more zero sum-ness. And so when you, for example, don't have - you have sectors where the Chinese can't invest in the U.S. and where the Americans can't invest in China, or if you cut off travel between the two countries, you cut off media coverage in the two countries, anything you do that erodes that interdependence is part and parcel of this process of decoupling.

Caitlin Dean (04:24): And while this is something that, you know, we've heard more and more about in the recent past, this isn't a split that just started recently. This has been years in the making, hasn't it?

Ian Bremmer: Yes, it has. Decoupling is something we've seen for a long time in part, because the presumption in the West that the Chinese, as they got larger and wealthier, that they would align with the West, that they would politically liberalize and they would become a free market. And therefore they would open their markets automatically in a transparent way to the West - that hasn't happened.

And so, for example, you look at well before coronavirus, well before President Trump, you had some of the most important American technology firms that just did not have access into China Facebook, for example, Amazon, Twitter, for example, Wikipedia. So that was already creating some decoupling.

And so too the fact that Chinese labor was getting comparatively more expensive meant that you had some firms that weren't necessarily bringing a lot of labor back to the United States, but were thinking about cheaper places. So Vietnam's explosion in growth has come in part because some lower level manufacturing and increasingly higher level manufacturing has shifted from China to Vietnam. And that's happening in many places, uh, particularly in Southeast and South Asia.

Caitlin Dean: David, what are some of the economic implications we've seen around decoupling?

David Bailin (05:55): So the economic implications of decoupling have a lot to do with what's available, what services and goods are actually available in what parts of the world - that clearly is changing. And then we actually have the “Intel inside” of those things. What are they made of, how are those components put together? And where do those components come from?

And as we see decoupling take place, we're seeing markets that are literally bifurcating, there'll be an East and a West market for certain goods and services. There'll be competition, you know, between the East and the West, the U.S. and China and its allies, in both cases, that'll take place. It's going to make goods and services more expensive initially.

Second of all, it's going to create firms that don't have common interests competing. And that means that they're going to lack common standards. A good example of that is the internet itself. Free access to information in one market, heavily restricted access to information in another market, one level of surveillance and privacy in one market, a different level of perceived privacy and surveillance in another market and the economic tradeoffs for that happen to be around what Ian talked about, which is data. To the extent that a government or a business is happy to share the information and data associated with its business and sees that transparency to data and its relationship to China as really not threatening, that could be an advantage in terms of getting cheaper goods and services in that marketplace. And similarly, if you think about the need to maintain privacy or to have a different type of internet, you might be willing to pay more or do different things to protect your assets in a market that is open

Caitlin Dean: Ian, what are some of the potential impacts on things like research, healthcare and education?

Ian Bremmer: Well, when you think about data, as David was saying, you're not just talking about your smartphone and digital commerce. You're also increasingly talking about the future of research and healthcare and education and even agriculture, right? I mean, the efficiencies that are being driven in all of these fields, especially in the pandemic era, when people are in their homes and socially distant, but you still need to get your kids to school and you still need to be able to see your doctor. And that means applications. That means data, that data is going to be collected. It's going to be surveilled. There's going to be advertising that's sold against it. It's going to be commercialized.

And so, as you think about a decoupling in data, you're not just talking about the small number of super firms. You're increasingly sort of digging much deeper into the economy. You're splitting apart the way a lot of different sectors work that had been increasingly globalized. You're changing the trajectory on that. And you're also splitting apart human beings. You're saying that depending on which set of applications you are attached to, that actually determines who else on the planet you'll be connected to. And increasingly that's going to have geopolitical overtones as decoupling continues.

Caitlin Dean: David, what could decoupling mean to average consumers, whether they're here in the U.S. or elsewhere around the world?

David Bailin: Well, let's talk about consumption in a few different ways. We always think of them as, you know, things that we buy, you know, hard goods, phones and things like that. But following on to Ian's point and looking specifically at healthcare, let's take a look at the pandemic and the vaccine. And right now you have a race to produce a vaccine in the United States, in Europe, China, and in Russia. But when it comes to talking about the cooperation that one would normally see in scientific research and scientific endeavors, for the benefit of greater humanity, you're seeing the opposite. You're seeing a decoupling and a competition, even in the production of the vaccine for the virus.

And so this to me is the, when we talk about the impact on the consumer, let's talk about the impact on humanity. And I think that's a real loss and that loss is going to be seen in many places associated with climate change, associated with fundamental sharing of sciences that can benefit humanity, whether it's from clean water to agriculture.

And so when I talk about the idea of higher costs, as I did earlier, I'm referring to a physical higher cost that things will cost more monetarily, but that there's also a cost socially that is well beyond profits and losses.

Caitlin Dean: Let's examine Henry Kissinger's comment that we're in the foothills of a new Cold War. Is this a new Cold War? And what does that mean if so?

Ian Bremmer: I don't think we are, in the sense that there is still an enormous amount of interdependence between the U.S. and China. We still benefit from the Chinese economy not falling apart. The Chinese still benefit from the United States, not only having a robust economy, but also continuing to provide some level of stability through our troops in the Middle East, for example, and NATO, for example, and other places - very different from the old U.S. Soviet relationship, very different from the present day U.S. Russia relationship, for example.

But there is a technology Cold War - it's real. There are Chinese national champions like Huawei for in technology, their most important tech company - that the United States is trying to actively hinder. Indeed. I don't think we've said this publicly, but I think it's pretty clear that we'd like them to fail. We we'd like them to not be an operating concern in the next say, five years.

We want Western technology to be dominant and functionally displace China as an emerging technology superpower. And that has really significant implications. It doesn't mean that Chinese students won't study in the U.S. anymore and pay full freight in their tuition. Doesn't mean that if you go to a Walmart in five years, you won't still be buying a lot of Chinese manufactured goods. So those things would happen if there was a Cold War.

But it does mean the most important sort of new and innovative sector in the global economy is increasingly in a combative and very non globalization orientation. And that's going to cause both a lot of conflict, and it's also going to drive a lot of inefficiency. I think that there are companies like Amazon that will increasingly become national champions, patriotic institutions for the United States in many ways, mirror imaging, the way the Chinese have set up their technology sector in the past decade.

David Bailin: When you think about what a Cold War is, right? It's a state, you know, of, of hostility, whether it's political hostility, military hostility that exists. It's full of things like, you know, propaganda sanctions, threats. And so when you look at the conduct of the two countries today, as it's being done, I do think it very much feels like what we experienced before in the Cold War with Russia.

But what's going on now in terms of the activities that are taking place between Xi and Trump today doesn't necessarily mean that that's going to be the nature of what the relationship is in the future. And so I think we have to think more broadly about that. If President Trump is reelected, then one can imagine a continuity of what I would describe are Cold War actions on the part of the U.S. and China towards one another.

But if Biden were to actually win, then it could create even greater competition with China, right? Because he would probably realign the U.S. with European allies. So when we think of the Cold war from what Kissinger was experiencing, literally it could go that way for the next four years if Trump is reelected, President Trump is reelected, but it also could go a very different way, a different type of “war”.

Ian Bremmer: I think it’s very clear that right now, the trajectory of the U.S. China relationship is negative in every aspect of it, whether you're talking about the World Health Organization and the vaccines that are being developed and culpability for the original outbreak of coronavirus to trade and intellectual property, to technology and data and cyber and artificial intelligence to Hong Kong, to Taiwan, to the South China sea, the East China sea, Tibet. I mean, it is a pretty long list.

It's interesting that while the foreign policy orientations of Biden and Trump towards China are broadly similar, I mean, they generally agree that the U.S. needs to take a harder line towards China on pretty much all of these issues, but the way that they would go about it is actually very different. So to the extent that a Cold War were possible, you, you know, you kind of blunder into it. It's like a hot war. You know, it's very rare in history that you have two countries that actually plot out strategically here is how we're going to get into a war with our major antagonist, rather it's a lot of miscalculations, bluster that you expect the other side we'll back away from messaging that you think you're sending, but that they're not receiving properly. And that has become more dangerous in the last couple of years of the Trump administration. I agree with David, that's one where the outcome of this election will matter.

Caitlin Dean: Just continuing for a little bit on this idea of the Cold War, this comparison with, with the Cold War several decades ago, David, unlike the Soviet Union, China has real resources. It's the second largest economy in the world. So how does that change the equation as well?

David Bailin: Well, you're right. They could not be more distinct from one another. China now has developed so rapidly and brought so many people out of poverty that its own internal economy in the course of just 30 years is now the most important aspect of how it's going to perform in the future.

We estimated that less than 4% of its GDP has anything to do with the United States now in terms of actual trade and given that they are extraordinarily different. So if we think about what that means, there is no way that there won't be interdependence, political dialogue, economic relationship between these two countries.

So when we think about this and we think about markets, and we think about the economy in terms of a stock market or investments, China is infinitely more important than Russia. So for portfolios, right? When we think about investing, we think about being able to identify companies with significant growth prospects, revenue, and profit growth prospects, that can stake out dominant positions in their relative industries and compete globally.

Russia has virtually none of them, and China has literally one or more in every single sector. Some of them are behind the U.S. and the West, but many of them are on par. And so China is number one here to stay, will become the largest economy in the world, and is taking steps right now to ensure that it has its own set of capital markets, which is one of the reasons why it took the steps it did in Hong Kong to gain access to capital, to allow that to be the case.

So when we think about a Cold War, largely political, not really a significantly economic. Here, what we're talking about is very intense competition that will last for who knows 50, a hundred years, whatever, but a very, very long time. And they'll be competing for capital for market share, uh, for dominance in industries. And ultimately, you know, if that is peaceful, that could be pretty extraordinary for what it could do for humanity, if it is not peaceful, it could be extraordinarily expensive in some of the ways that we've talked about.

Caitlin Dean: So I want to continue on that point and talk to both of you a bit about how this competition and the decoupling will impact the rest of the world. So, you know, will it be harder for other nation’s companies to find their place? Will other nations need to choose sides?

Ian Bremmer: Let me give you an example. I have been talking to the Japanese leadership a lot in the last few days. As you know, Prime Minister Abe’s not there for much longer, he's going to be replaced, by the former chief cabinet secretary, Suga. And Abe is a long lasting Japanese prime minister, the longest in modern day history, and also very oriented towards foreign affairs with a very strong relationship with President Trump.

That won't be true of Suga, and it's going to be more difficult for the Japanese to continue to balance between the strong economic relationship with China and a strong cyber and technology and security relationship with the United States. I think about Tik Tok here in the U.S. and how Microsoft was trying to buy it. And Oracle says they're going to do a partnership. And the difference of course, is that Microsoft doesn't have a very strong, lean personal relationship with Trump and the Oracle CEO does.

So they think they can maybe cut a better deal and they can get away with more hedging. That's kind of like Abe and Suga. It's going to be harder for them. And I think a lot of countries in the world that presently think that they're going to be able to continue to hedge as the U.S. China relationship deteriorates, particularly around data and technology and 5G and the internet of things, are going to find out they can't.

When the U.S. left the Iranian nuclear deal just to a couple of years ago, every American ally that was a co-signer of that deal, opposed America leaving it strongly and publicly opposed. And yet in 2020, you look at all of those countries, you look at Germany and France and the UK, and you look at, you know, sort of Japan as well, and you see that none of them are doing business with the Iranians anymore, because even though they oppose the U.S. pulling out, if they have to choose between the U.S. and Iran, and the U.S. dollar has reserved currency in the U.S. banking system, the ability of the Americans to weaponize those transactions and sanction them well, obviously American power matters a lot more.

And ultimately those decisions will also be made by advanced industrial economies that are thinking about aligning their technology and surveillance and data systems and cyber systems towards the U.S. or towards China.

David Bailin: I can't agree with you more. I think that the idea that you're going to be able to hedge your relationship between the U.S. and China between the East and the West in development of technology, but in so many different aspect is absolutely going to become more stark in the future.

One of the ways we like to talk about that is that in one sense, you have the death of oil, right? The death of fossil fuels and the rise of data as the new oil. And they are so different the East and West, that, that alone is going to cause the ability to hedge to go away. So you've got this concept of tech infrastructure, right? There's going to be a U.S. and a China standard. Let's think about what that means for China. They've tried over the course of the last 20 years, but especially aggressively in the last 10 to provide very inexpensive funding for countries to buy their infrastructure, whether it's, you know, poles and wires, but now is all repeaters and towers.

They've done that through cheap funding. They've built the ports, they've built the trains and the tracks, and they've done that to build the relationships that would allow them access to those markets.

Now, when we look at what's taking place, as Ian had just talked about whether it's in India or Australia, Europe, and the United States, we're talking about basically a coming together of countries that want to maintain certain standards. And can't therefore rely on a lot of the Chinese technology and are certainly not needing to buy the infrastructure. And so you're not going to be able to hedge.

And we're going to see that happen in the equity markets, where you're going to see the development of what we call G2, which is a competitive company of one or more in each market, which are going to be competing large, but they're going to be doing it on different standards. You'll be able to invest in both if you're an investor, and that's a good thing, but you're not going to be able to actually buy from both if you're actually going to be, um, taking parts, making things. Or if you're going to be building entire ecosystems with the purchases.

Caitlin Dean: So both of you spoke a bit about the developing world in terms of the effects that this competition would have. What are the sort of ultimate positive and negative impacts that this will have on the developing world?

Ian Bremmer: For the developing world, it's pretty clear that you'd rather have competition for investment, competition for your data provider. It's going to get you better service going to get you a better return. You know, when I travel to places like Nigeria and Ethiopia, India, and you see that there are a bunch of local leaders that recognize that the United States isn't interested in providing the level of external investment that the Chinese are, the Europeans aren't, the Japanese aren't.

And if the Chinese are the only game in town for some of the poorest countries and some of the places that are most brownfield in terms of infrastructure, then the Chinese are going to be able to name their price. And it'll ultimately be in China's favor and not in the favor of these countries.

I mean, you always, in the same way that in the United States, we have the sense that we'd be better served. If tech companies were not nascent monopolists in the fields that they operate. And it's why antitrust has been an important component of a properly functioning free market system. Well, geopolitically increasingly there are a lot of places where you don't really have competition. And this decoupling in the tech space is actually going to exacerbate that problem for some of the world's poorest countries.

Caitlin Dean: So Ian, the concerns about data and Chinese surveillance, aren't unique to president Trump and they aren't even unique to the United States. We just saw a ban on Huawei in the UK, for example, for similar reasons. So how do concerns about cyber security play into this?

Ian Bremmer: Again, if you have to choose, and you have the luxury of not worrying about broader trade issues, where capital's coming from, how much you're spending, your concerns will be more about China than they will, the United States. That's pretty clear. And yet, if you ask any of these country leaders, who would you trust more the United States or China, it's not remotely close. I mean, the U.S. the private sector does dominate these issues. There is rule of law. There is accountability, however imperfect, and that's just not true in the authoritarian and state capitalist China, but it's not just about that. Chinese 5G is cheaper. They've rolled it out faster. I mean, you even have farmers in rural areas of Alabama in the United States

(26:44): that got angry when the U.S. government said, you can't use Huawei because frankly, they didn't have any money to do anything else. It was going to be costly for them. And so if Alabama farmers are saying it, I mean, you imagine what they're saying in Bangladesh, and Sri Lanka, right?

So I do think that these are complicated conversations. In some countries, the conversations are going to be driven much more by commercial factors, the wealthier you get, the more they tend to also include questions of alignment, of values, common interests in international organizations and the like.

David Bailin: I think that we're seeing in the election an extraordinary vulnerability that the West has because of the technology that it uses because of how open it is and because of how it can be exploited by China and the Russia for propaganda purposes. So, while we think about Western technology as advantageous, and it also is quite vulnerable, that's going to create of course, industrial opportunities to make it safer.

But there's a difference between the trust that one has in the U.S. or the West and in China, where I couldn't agree more with Ian. So let's think about what that means. Over the next 10 years. And I just bought a new washer dryer, and both my washer and my dryer are wifi connected. And whether the Chinese watch them or not, doesn't matter, but all of the sensitive assets that one has in the future are going to be part of the internet of things.

Now, when we think about that, that means the self-driving car, right, can be actually attacked. It can be hacked. The drones that will deliver packages can be hacked. The individual devices in our homes could theoretically be weaponized to be able to turn a thermostat into a listening device. And I could go on and on. And I used to think these things were small, and it turns out that all of them are risks and all of them are more risks for the West than for China and its allies. So I think that we're at a stage where this issue of the systems and security are going to become ever larger. And I think that's going to be a major policy and economic struggle for decades to come.

Caitlin Dean: So Ian and David, everything today is of course colored by the Covid-19 pandemic. And the two of you have had a chance to talk about this very topic at a couple of different points in this pandemic. In general, do you think the U.S. China relationship has worsened over the course of the pandemic? Has it gotten better? Even in just, you know, the first nine months of this year, there's been lots of change. So what have you seen in the U.S. China relationship over this period?

Ian Bremmer: Oh, it's very clearly gotten worse. I mean, the United States is blaming China for the original sin of the pandemic for the coverup, for the first four weeks when they weren't telling the World Health Organization, when they weren't sharing information internationally, or with their own people. There's truth to that. But it hasn't led to more cooperation between the two countries it's led to mutual recrimination.

Chinese social media presence, official government, social media presence has become much more hostile towards the United States publicly. And there's also been more willingness to intervene. And de-legitimized U.S. institutions as well as the election, which in 2016, the Chinese really weren't doing it was mostly about Russia and a little bit of Iran.

There's no question that the fact that this has caused a lot of economic damage, both in China, which is going to have flat growth this year and in the United States, the fact that president Trump is looking for someone to blame. And the fact that Xi Jinping internationally has a lot of fights on his hands.

Both of those things have created a much more dangerous relationship between the two. And, you know, when you start thinking about next year and the fact that we desperately need a vaccine or vaccines that work to respond to this truly global virus, truly global pandemic, and you realize that the Americans and Chinese are cooperating, not one wit on this issue that tells you really all you need to know.

David Bailin: Absolutely. You know, technology has been accelerated, right, in terms of its use, in terms of its value. And de-globalization has been radically accelerated by this. The other thing that we've seen, what's been remarkable is how their economies have actually both recovered incredibly well, given the amount of impact.

So, you know, there are four industries in both countries that have been completely hammered, travel, including flight, obviously, and hotels, education, any social gathering, you know, uh, industries, healthcare all have been deeply impacted. And obviously anything to do with retail and restaurants, both countries.

China shuts down its industry. 88% of its economy comes back. Consumer spending comes back. They have the ability to make a production come back, it's come back faster. Then three months later, crisis hits the U.S. the U.S. manages the healthcare crisis as I mentioned, very poorly. The economy comes back 88% of it recovers, same exact impact. And what you see is look at how incredibly resilient the Chinese economy is. It's as resilient and as strong as the U.S. economy. It's a perfect, almost a mirror image of one another.

And it speaks to the, what Ian talked about at the beginning, this, this sort of equality, if you will, the fact that they are, there are two super powers with two super economies and both have the ability to recover because of very different circumstances and policies. But because of the essential nature of their economies, their consumer economies.

Caitlin Dean: How do you discuss decoupling with your clients? What kind of advice or guidance do you give investors on this?

David Bailin: We've touched upon this today in a variety of different ways, but when you're investing, you want to have as much information as you can, and believe that the circumstances under which you're deriving that information are going to stay constant. So that certainly is not the case under President Trump and wouldn’t be under his coming administration, but it might very well become the case, but in the event that President Biden were to be elected.

So what we've been talking a lot about from an investment standpoint is even though the idea of a full global economy with a set of rules would have been arguably the most optimal. What we're telling our investors now is that they should think about building portfolios that are, as I mentioned earlier, G2, where they have exposure in both markets, an East and West market, you know, most, all of the major industries.

Number one, it could actually create portfolios that are more diverse and less volatile because the economies will not necessarily operate in a synchronous way. Second of all, the dominant countries or the dominant players in each of these markets could turn out to be profitable, have incredible growth prospects and generate the kind of stock market returns you've seen in both or both economies. And lastly, you will actually get the benefit of identification of leaders, because you'll be able to compare two different leading companies in the same industry, across two different markets. And you'll understand, and I think Ian has made this point very well, that you're going to get two different types of 5G, two different evolutions of the next generation of everything.

And so for us as investors, this is actually a very ripe environment. Now, the East, you know, where China sits physically has been an unstoppable trend that we've talked about at Citi Private Bank for quite some time. The whole region, the demographics of it, it's relative ability to leapfrog because it doesn't have existing infrastructure to replace and to use the latest technology. The idea of onshoring, of building plants that manufacture things closer and closer to the customer, it will benefit from all of that much more greatly than any other part of the world. And China sits obviously adjacent to all of it. So that advantage goes to them. But in my mind, if you're investing, this is going to be an incredible opportunity.

Caitlin Dean: David, Ian, thanks very much to both of you.

David Bailin: Thank you.

Ian Bremmer: Thank you.

Caitlin Dean: That's it for this episode of Living Beyond Borders. Stay with us throughout the fall as we look at the biggest issues impacting your world and your money. Next time, the future of cities in a post pandemic world. I'm Caitlin Dean. Thanks for listening.

Previous Page


Subscribe to GZERO's daily newsletter

Subscribe to our global politics newsletter GZERO Daily