Name: Why tensions between the U.S. and China are mounting
Uploaded: 2020-08-10
Duration: 7 min 9 s
Description: Fortune's Geoff Colvin explains the recent unsettling developments between the two global superpowers.

 GEOFF COLVIN: The relationship between the US and China has often been called the most important bilateral relationship in the world. For the past seven or eight months, their relationship has been deteriorating. In just the past few weeks, it has degenerated very severely. When something like that happens between the two great powers of the world, it can affect all the economies around the world. It can affect people's livelihoods. It can affect war and peace. That's why this is important right now. The relationship between the US and China degenerated very quickly and very severely in the last part of July. Many things happened all in one week really. The United States ordered China to shut down its consulate in Houston, saying that it represented what they called "years of massive illegal spying and influence operations." Literally on the same day, the Justice Department announced charges against two Chinese hackers for stealing information, including information on COVID-19. What was most interesting to observers is something that the US said in that indictment. China has now taken its place alongside Russia, Iran, and North Korea in that shameful club of nations that provide a safe haven for cyber criminals in exchange for those criminals being on-call to work for the benefit of the state. In other words, the US was saying this indictment of two individuals is really an indictment of a nation. After that, China ordered that the United States shut down its consulate in Chengdu in Southwest China. In the 41 years of diplomatic relations between the two countries, neither one had ever ordered the closure of any diplomatic facility. This was a big and decisive step forward. This was not routine. This is a classic conflict. A rising power-- in this case, China-- coming up to challenge an established dominant power-- in this case, the United States. These things have been studied. And in most cases, over history when something like this happens, it leads to war. It doesn't have to but it often does. And that's what makes this so significant. We are at a crossroads, a turning point for the world right now, which can be described really in three big questions. The first and most important from a world historical perspective is, what will become of the US/China relationship-- the relationship between the two largest economies on Earth? An additional one is, who wins and loses globally from the COVID-19 pandemic? And the third question is, which of two very different candidates will Americans choose for their president in November? All of those questions are intertwined. They're all connected. And together they create this turning point that we're at. China certainly seems like a very formidable economic rival to the United States, and it is. But it's not as utterly dominant as it may appear. Even if these two countries keep growing at last year's rates, it would be almost 2050 before China pulled even with the United States. And if China's growth slowed down by even one percentage point, which is to be expected as they grow bigger, then they would not pull even with the United States until 2090. And so the Chinese economy is not this dreadnought, not this unstoppable machine that we sometimes think it is. The economic contest between the US and China is fundamentally more than anything else about technology. That is the foundation of economic growth, and it is the foundation of national security. At the same time, they are also competing to develop a COVID-19 vaccine. And that's not just for their own use, although that's important. For example, China was giving many countries free supplies for fighting the pandemic. This was to counterbalance their initial cover-up and mismanagement of the pandemic in their own country. But they're trying to build goodwill with other countries by giving away these things. Each country wants to establish its prestige with the rest of the world, and nothing would do it like being the first to get a vaccine. It's natural to wonder whether the outcome of the US presidential election in November will make a big difference to this deteriorating relationship between the US and China. The answer is probably not. One of the few things on which there is broad bipartisan agreement in Washington right now is that the US should be taking a tougher line on China. And in fact, in the campaigning so far, both President Trump and Joe Biden have tried to position themselves as the tougher guy on China. They have each run TV ads portraying the opponent as weak on China. So even if Joe Biden wins, it won't change the relationship that much. In the big picture, the US and China are going to keep cooperating in many ways. There will be all kinds of commerce between the two of them. At the same time, they will be fighting. The best guess about how the US/China relationship will develop from here is on the analogy of the Cold War. In fact, a lot of the analysts are calling it Cold War II, meaning that the two countries will be competing with each other by every means other than bombs and bullets. No one can say for sure where this relationship is going to go from here, but there is a wide range of possibilities. It could deteriorate further and things could get pretty bad, or it could actually get much better. The two countries could realize it's in their own interests to cooperate on a lot of stuff. They could decide to manage the relationship as a corporate-style coopetition. What's interesting is that the possibility, even the extreme possibilities, are fairly plausible. They could both happen. That means planning is harder, bets are riskier. Fundamentally, all of us just have a lot less room for error. 

Fortune's Geoff Colvin explains the recent unsettling developments between the two global superpowers.

Why tensions between the U.S. and China are mounting

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Fortune's Geoff Colvin explains the recent developments.