Second Cold War: The History of Globalization

In the early 20th Century, some historians like Niall Ferguson would regard that as the first age of globalisation. Certainly there was not aeroplanes, internet and satellites, but the British Empire was strong enough to have great steam ships and the All Red Line. The foundation of the British Empire was trade. It was trade that motivated the British to go to India and ended up governing the country. It was trade that motivated the British to colonise the City of Hong Kong. Before the Chinese government in 1842 cased control of Hong Kong Island, the British was a major trade partner of China, importing tea to the United Kingdom, and it ran a trade deficit with China at that time. Then they started to export Opium from British India to China, albeit the trade was not legal by Chinese law. Chinese wanted to crack down this trade, which ended up with a war by the British against the Chinese, known as the Opium War, as the British tried to protect British interest in China trade. This illustrates how globalisation actually was carried out more than a hundred years ago at the height of the Victorian British Empire. British were consuming tea from China, silk from India, sugar from Jamaica, just to name a few. The first age of globalisation was ended with the first world war (WWI, 19141918), when the Austro-Hungary Archduke Franz Ferdinand was murdered in Sarajevo sparked a chain-reaction all over Europe, ended up with British declared war against Germany. But international trade returned after the war. But the brief prosperity in the post-WWI decade and return of trade was ended with the tragic Great Depression. The Great Depression increased protectionism among countries, and the Germans Weimar Republic effectively went bankrupt as the huge debt balances after losing WWI worsened public finances and hyperinflation caused by printing money to finance government debt. These events eventually led to the rise of Adolf Hitler, and Second World War.

Even though the Allies won the Second World War (WWII, 1937-1945*), at the end of WWII, the Soviet and the United States became power rivals for the next five decades, which was known as the Cold War. In the history of the last century, the globalisation at the start of the century was stopped by two wars, the Great Depression, and the cold war. The force of globalisation did not return until the last decade of the last century. After the cold war ended with the break-up of the Soviet, Western democracy and Anglo-American model of capitalism won the game. The forces of globalisation seemed to be unstoppable then. The advance in technology made communications and travels much easier, faster, and less costly. Multi-national corporations took advantage of the cheap labour in developing countries, invest in those places and turn them into manufacturing power houses. It is now not uncommon for any consumer products to have component parts made in 10 or more different countries, assembled in one place, and sold to the other. The force of globalisation made some once-poor countries rich, and China now has emerged as a super-power that challenge the United States. It was a happy story at first. The United States and the rest of the developed countries import goods from emerging markets, both won as the developed countries import cheap goods, and the emerging countries export their ways out of poverty. The brewing cold war is happening in few fronts. Firstly, the United States certainly was not popular in some countries. Islamic countries, for example, are obviously quite unhappy with the United States. Former and present communist regimes like North Korea seem hate United States as well. However, some of these countries are more friendly with China for whatever reasons. If the Western democratic countries want to get deals done with some of these countries, they will inevitably have to make comprise with China.

Second, the economic tension is mounting. China has long been accused of keeping its currency undervalued so they could make goods at attractive price to the United States, and at the same time cost jobs in the United States. This argument certainly makes no economic sense, as the root cause of the trade deficit and job losses is that Americans save too little while Chinese people save too much. And besides currency war and protectionism following the financial crisis, as Chinas economic power rises and the Americans is declining, the world economy looks increasingly dependent on China to keep growing and to finance their public debt.Resource-scarce country like Japan is also very much dependent on China for natural resources. Increasingly, when China is confronted by other countries, they can retaliate with economic cards. Also, in terms of political ideological difference, China would not bend. As demonstrated by thereactions to awarding Liu Xiaobo the Nobel Peace Prize, when it comes to political reforms, China has shown no intention to compromise with the West and to accept the Western value of democracy. Events like the Nobel Peace Prize would be seen as an act to provoke China, even though it seems perfectly normal in the Western culture. Overall, there are multiple areas where the two super-powers can clash. Truth be told, in terms of military power, China is still far behind the United States, but economic firepower alone would be dangerous enough. Just like the fall of the British Empire, it was inevitable that the new emerging superpower would clash with the old one. Every emerging superpower has been feared by the established superpower. The British Empire feared the rise of German Empire before the WWI and eventually fought with them. The rise of the United States as the new superpower also made the British worried, but unfortunately the British owed the US billions of dollars after two world wars, it had to bend to the US, as shown in the Suez Crisis.

Then as Japan rose to the second spot in global economy, it worried the Americans as well. In the past 2 to 3 decades, there are a huge flood of management science studies on how the Japanese companies worked so well that they knocked out the Americans, from all those just-in-time inventory system to quality control, it showed the worries Americans had over the rise of Japan as an economic superpower. Today, we speak of currency war, but it is not the first one. In 1985, Japanese Yen was forced to appreciate in the Plaza Accord, a demonstration of economic protectionism practised by the Western countries. Then Japan went to its final run up of their bubbled economy, and burst, leaving Japan a sick man of Asia for 2 decades. Then China. The Americans wanted China to open up its economy for decades, and it did not happen until Deng Xiaoping was in power. The Americans might have thought: now even the Chinese embrace Western capitalism, perhaps they would sooner or later embrace Western democracy as well. The West won! Or did it? The Chinese communists do embrace capitalism (oddly), but they do not embrace democracy (which is normal). When it comes to political ideology, China would not make compromises. And it is also true for territorial issues. The Chinese only learn half of what is now regarded as the pillar of Western modern culture, and its economy has grown to a point that the established superpower fear that their top spot will be lost sooner or later. In the time of global recession, the China economy maintained strong growth and provided the largest stimulus which the Western countries would envy. Now China is holding large quantity of national debts issued by the US, Japan, and EU countries. Whether you like it or not, China becomes the lifeline for many developed countries. China also supplies some 97% of the world rare earth materials which are used in many high-tech products. So ironically, the United States wanted China to open up its economy, but as it opened up for 30 years or so, China comes back and bite you. As developed countries are becoming more

and more dependent on China in economic terms, China has learned to play the economic warfare to their own advantage in foreign affairs. Paul Krugman has no love for China as China play the economic card to their advantage, and said the recent dispute with Japan and the implicit embargo on rare earth exports were: further evidence that the worlds newest economic superpower isnt prepared to assume the responsibilities that go with that status. He, as well as many people, might have forgotten that China was hardly the first one who play this game of economic warfare, and certainly will not be the last. As the British Empire declined, the United States was the lifeline to the United Kingdom. The true reason for the British to withdraw from Egypt during the Suez crisis was that the United States opposed the invasion and would threaten to cut off financial support so that the British could not hold any longer. Americans today might be upset if China won the economic warfare, but think about the British Empire who lost the economic warfare to their very colony which was spun-off from their empire. In Short, the economic warfare has been used, and will be used. After all, its the economy, stupid. In the world full of weird geopolitical games played by the two super-powers and their respective allies, there are places for conflicts. And to resolve conflicts, there will be compromises. TheEconomic Warfare might be used, or some countries might threaten to use to play them in their advantage.

Photo: London Summit 2009 For instance, how the United States might push North Korea to give up their hope for nuclear weapon? North Korea is a strange place indeed. There is probably no other country that the power is inherited, and information is so controlled by the state that the citizens of the country has no idea about what is happening outside. There was one a rumour which says that Kim Jong-il claimed he is an internet expert. The problem was, his fellow citizens probably have no access to the internet, which makes the claim more like a joke for a big laugh. In the World Cup earlier this year, there are also rumours that if their football team loses the game, the entire team will be sent to be coal miners. Of course they lost the game tragically, and whether the team became coal miners is not quite clear now. North Korea is extremely anti-US. Or perhaps they are anti-everyone. North Korea wants to have nuclear weapon, although their fellow citizens cannot eat well, and their stupid failed missile tests were promoted as a success within its country. The United States will want Chinas help to fix this erratic regime, and there will be occasions for the United States to make compromise with China.

Perhaps they cannot push China to let Chinese Yuan to appreciate if they want China to do the things they want. Not only does the United States want to get something done with the help of China, China will sooner or later want to get something done with the help of the United States. The sovereignty over East China Sea, for example, is one of the very hot topic these days after the diplomatic fight between China and Japan. Chinese people are still taught very much about the Massacre in Nanjing during the Second World War, a serious war crime committed by the Japanese forces, not much different from the crime committed by the Nazis. However Japanese has not, at least in Chinese peoples view, sincerely apologise for what they have done. And when the United States handed over Okinawa back to Japan in 1972, they handed the Diaoyu Islands/Senkaku Islands to Japan, which made China angry for decades. China wants the Islands, but they are without military means. The only hope is Economic Warfare as Japan is increasingly dependent on China. And even though the United States seems to be behind Japan, now Japan can perhaps no longer hope that the United States will always help them, because there are more diplomatic games between China and the United States. Just to wrap up the whole series, I have written about the history of Globalisation, particularly the often-ignored first age globalisation in the early 20th Century and how globalisation after the cold war changes the world and brings new conflicts, particularly after the economic crisis. In the previous part, I wrote about what sort of economic warfare would China play, and point out that China is not the first one to play an economic card. In this final part, I pointed out a few more examples of what would trigger these super-powers to clash each other with economic warfare and diplomacy. The whole series is kind of imaginative in a sense that no one really knows what will happen. I do not pretend to be an expert in predicting political events, but I do see an overall context for more tensions between countries after the financial

crisis. We might be disguised by the name of trade war, currency war, etc, but in the heart, they are cold wars: wars without gunboats and missiles.