Cold War 2.0: Implications for Middle Powers


The commercial and geopolitical conflict between China and the United States is unlikely to abate in the coming years. This brief discusses the contours of recent geopolitical history in order to contextualize the nature of this new “Cold War” between the two superpowers. Then the brief turns attention to what we can expect from the Biden administration with respect to its policies vis-à-vis China. At the same time, it explores the policy conundrum that the emerging Cold War “version 2.0” poses for United States allies that have close economic ties to China, as is the case for middle powers like Australia and Brazil.

As geopolitical concerns multiply, and the phenomenon of economic coercion becomes more common, middle power leaders are increasingly being guided by security concerns when acting in the economic policy domain. This can lead to unintended consequences and economic damage if geopolitics dominates economic 
policy thinking during policy formation. Thus, the key policy recommendation of this brief is for governments to create greater institutional dialogue between policy spheres that have typically been operating in a separate fashion after the end of the original Cold War. In short, the importance of better integrating geopolitics and economics.1 


Much has been written about the role of the Trump administration in augmenting bilateral tensions with China. Some have characterized America’s protectionist measures as a tactical move undertaken primarily to address the commercial imbalance between the two countries. In this context, the characterization of the trade conflict as a harbinger of a new cold war might be considered an exaggeration.

The reality, however, is that there has been a significant increase in the rhetoric of both countries in framing developments as a “conflict.” Over the last four years, the USA has announced the reorientation of its defense strategy with the objective of placing greater priority on responding to a potential great power confrontation (in contrast with the previous focus on international terrorism). 

Mike Pompeo, the former United States Secretary of  State, explicitly identified the conflict between market  economies and socialism with Chinese characteristics  as the main determinant of international relations in  the 21st century in a speech delivered in July 2020.2 On that occasion, he also stated that countries will have to pick a side “between freedom and tyranny.”

China, in turn, has also changed its approach to international relations. Gone are the days when Deng Xiaoping advanced the “keep a low profile” stance as the paradigm for China’s diplomatic policy (sometimes described as a strategy of “hiding your strength, biding your time and never taking the lead”). The Xi Jinping era has been marked by increased diplomatic assertiveness (as illustrated by China’s recent statements and actions with respect to Hong Kong, Taiwan and Australia), a growing military presence in the South China Sea, the ambitious scope of the Belt and Road Initiative – not only as an infrastructure project, but also as a major geopolitical endeavor (despite some recent retrenchment amid concerns about debt sustainability) – and Xi’s proposition that China is ready to “lead the reform of the global governance system with the concepts of fairness and justice.” 

There is hope that President Biden will be able to address these issues, restoring the credibility and leadership of the USA among world democracies and diminishing the confrontation with China. The initial appointments of the new government (e.g., the choices of Ronald A. Klain as Chief of Staff, Antony Blinken as Secretary of State, and Jake Sullivan as National Security Advisor) give credence to the idea that a more conventional approach to United States foreign policy will prevail in the next four years. Some have even characterized Biden’s agenda as Obama 2.0 in view of the individuals involved and of recent statements.3

The victories of the Democratic Party in the run-off elections for the Senate in Georgia (January 2021) will facilitate the implementation of this agenda. Mr. Biden could also use his Executive Powers to address some issues independently of the Congress. The return to the Paris Climate Agreement – which the US handled as an executive agreement, not requiring Senate approval – as well as the decision to retract the US withdrawal notice from the WHO, were among the first decisions of the Biden administration. 


The views expressed here are the author’s, and may not necessarily represent the views of the Institute for International Trade.

Tagged in Policy Brief, World Trade Organisation, World Trade System, China, US, Australia, Europe, East Asia, Southeast Asia, Sub-Saharan Africa, Featured

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