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China, on the other hand, has placed enormous investment in both AI and infrastructure, not just in China, but throughout the world. Although China and the United States enjoyed the benefits of their interdependence previously, by attempting to isolate China from the rest of the world, the United States will cause harm to all, especially to itself. It is critical at this juncture that worldwide cooperation in the development of standards for both 5G technology and responsible AI be developed so that all companies and governments in all countries can participate. Global interconnection is not only an important business goal, it also will drastically improve conditions for underdeveloped countries as it opens new markets and improves economic conditions there. However, the future of AI is now at risk due to the split between the United States and China.

B. Technological Bifurcation

A trade war would do enormous damage. It could foster a resentful and aggressive China and lead to the situation foreseen by Mearsheimer (2001), where a declining America decides to halt China’s rise.

Decisions for war or peace

2023 wasn’t exactly a year of good news when it came to our war-torn, beleaguered planet, but on November 15, US President Joe Biden and Chinese President Xi Jinping took one small step back from the precipice. Until they talked in a mansion near San Francisco, it seemed as if their countries were locked in a downward spiral of taunts and provocations that might, many experts feared, result in a full-blown crisis, even a war — even, god save us all, the world’s first nuclear war. Thanks to that encounter, though, such dangers appear to have receded. Still, the looming question facing both countries is whether that retreat from disaster — what the Chinese are now calling the “San Francisco vision” — will last through 2024. Prior to the summit, there seemed few discernible obstacles to some kind of trainwreck, whether a complete breakdown in relations, a disastrous trade war or even a military clash over Taiwan or contested islands in the South China Sea. Beginning with last February’s Chinese balloon incident and continuing with a series of bitter trade disputes and recurring naval and air incidents over the summer and fall, events seemed to be leading with a certain grim inevitability toward some sort of catastrophe. After one such incident last spring, The New York Times columnist Thomas Friedman warned that “the smallest misstep by either side could ignite a US-China war that would make Ukraine look like a neighborhood dust-up.” In recent months, top leaders in both Beijing and Washington were becoming ever more concerned that a major US–China crisis — and certainly a war — would prove catastrophic for all involved. Even a major trade war, they understood, would create economic chaos on both sides of the Pacific. A complete breakdown in relations would undermine any efforts to come to grips with the climate crisis, prevent new pandemics or disrupt illegal drug networks. And a war? Well, every authoritative nongovernmental simulation of a US–China conflict has ended in staggering losses for both sides, as well as a significant possibility of nuclear escalation (and there’s no reason to assume that simulations conducted by the American and Chinese militaries have turned out any differently). As summer of 2023 turned into fall, both sides were still searching for a mutually acceptable “offramp” from catastrophe. For months, top officials had been visiting each other’s capitals in a frantic effort to bring a growing sense of crisis under control. Secretary of State Antony Blinken traveled to Beijing in June (a trip rescheduled after he canceled a February visit thanks to that balloon incident), Treasury Secretary Janet Yellen arrived in July, and Commerce Secretary Gina Raimondo visited in August. Similarly, Foreign Minister Wang Yi traveled to Washington in October. Their meetings, according to The New York Times reporters Vivian Wang and David Pierson, were arranged “in the hope of arresting the downward spiral” in relations and to pave the way for a Biden-Xi meeting that might truly ease tensions. Mission accomplished? Not surprisingly, for both Biden and Xi, the primary objective of the San Francisco summit was to halt that downward spiral. As Xi reportedly asked Biden, “Should [the US and China] engage in mutually beneficial cooperation or antagonism and confrontation? This is a fundamental question on which disastrous mistakes must be avoided.” From all accounts, it appears that the two presidents did at least stop the slide toward confrontation. While acknowledging that competition would continue unabated, both sides agreed to “manage” their differences in a “responsible” manner and avoid conflict-inducing behavior. While the United States and China “are in competition,” Biden reportedly told Xi, “the world expects the United States and China to manage competition responsibly to prevent it from veering into conflict, confrontation, or a new Cold War.” Xi reportedly endorsed this precept, saying that China would strive to manage its differences with Washington in a peaceful fashion. In this spirit, Biden and Xi took several modest steps to improve relations and prevent incidents that might result in unintended conflict, including a Chinese promise to cooperate with the US in combating the trade in the narcotic drug fentanyl and the resumption of high-level military-to-military communications. In a notable first, the two also “affirmed the need to address the risks of advanced [artificial intelligence] systems and improve AI safety through US-China government talks.” They also put their stamp of approval on a series of cooperative steps agreed to by their climate envoys John Kerry and Xie Zhenhua to mutually combat climate change. Still, neither president agreed to any fundamental alterations in policy that might have truly shifted bilateral relations in a more cooperative direction. In fact, on the most crucial issues dividing the two countries — Taiwan, trade and technology transfers — they made no progress. As Xue Gong, a China scholar at the Carnegie Endowment for International Peace, put it, whatever the two presidents did accomplish, “the Biden-Xi meeting will not change the direction of US-China relations away from strategic competition.” With that still the defining constant in relations and both leaders under immense pressure from domestic constituencies — the military, ultra-nationalist political factions and assorted industry groups — to hang tough on key bilateral issues, don’t be surprised if the slide towards crisis and confrontation regains momentum in 2024. The trials to come Assuming US and Chinese leaders remain committed to a nonconfrontational stance, they will face powerful forces driving them ever closer to the abyss, including both seemingly intractable issues that divide their countries and deeply entrenched domestic interests intent on provoking a confrontation. Although several highly contentious issues have the potential to ignite a crisis in 2024, the two with the greatest potential to provoke disaster are Taiwan and territorial disputes in the South China Sea. A self-governing island that increasingly seeks to pursue its own destiny, Taiwan is viewed by Chinese officials as a renegade province that should rightfully fall under Beijing’s control. When the US established formal diplomatic relations with the People’s Republic of China (PRC) in 1979, it acknowledged the Chinese position “that there is one China and Taiwan is part of China.” That “one China” principle has remained Washington’s official policy ever since, but is now under increasing pressure as ever more Taiwanese seek to abandon their ties with the PRC and establish a purely sovereign state — a step that Chinese leaders have repeatedly warned could result in a military response. Many American officials believe that Beijing would indeed launch an invasion of the island should the Taiwanese declare their independence and that, in turn, could easily result in US military intervention and a full-scale war. For now, the Biden administration’s response to a possible Chinese invasion is governed by a principle of “strategic ambiguity” under which military intervention is implied but not guaranteed. According to the Taiwan Relations Act of 1979, any attempt by China to seize Taiwan by military means will be considered a matter “of grave concern to the United States,” but not one automatically requiring a military response. In recent years, however, increasing numbers of prominent Washington politicians have called for the replacement of “strategic ambiguity” with a doctrine of “strategic clarity,” which would include an unequivocal pledge to defend Taiwan in case of an invasion. President Biden has lent credence to this stance by repeatedly claiming that it is US policy (it isn’t), obliging his aides to eternally walk back his words. Of course, the question of how China and the US would respond to a Taiwanese declaration of independence has yet to be put to the test. The island’s current leadership, drawn from the pro-independence Democratic Progressive Party (DPP), has so far accepted that, given the way Taiwan is slowly achieving de facto independence through diplomatic outreach and economic prowess, there’s no need to rush a formal declaration. But presidential elections in Taiwan this January and the possible emergence of another DPP-dominated administration could, some believe, trigger just such a move — or, in anticipation of it, a Chinese invasion. Should the DPP candidate William Lai win on January 13, the Biden administration might come under enormous pressure from Republicans — and many Democrats — to accelerate the already rapid pace of arms deliveries to the island. That would, of course, be viewed by Beijing as tacit American support for an accelerated drive toward independence and (presumably) increase its inclination to invade. In other words, Joe Biden could face a major military crisis remarkably early in 2024. The South China Sea dispute could produce a similar crisis in short order. That fracas stems from the fact that Beijing has declared sovereignty over nearly the entire South China Sea — an extension of the western Pacific bounded by China, Taiwan, the Philippines, Borneo and Vietnam — along with the islands found within it. Such claims have been challenged by that sea’s other bordering states, which argue that, under international law (notably the U.N. Convention on the Law of the Sea) they are entitled to sovereignty over the islands that fall within their individual “exclusive economic zones” (EEZs). In 2016, the Permanent Court of Arbitration in the Hague ruled on a petition from the Philippines that China’s claims were invalid and that the Philippines and its neighbors were indeed entitled to control their respective EEZs. China promptly both protested the ruling and announced its intention to disregard it. Chinese control over those islands and their surrounding waters would have significant economic and strategic implications. To begin with, it extends China’s defense perimeter several hundred miles from its coastline, complicating any future US plans to attack the mainland while making a PRC assault on US and allied bases in the region far easier. The South China Sea also harbors major fisheries, an important source of sustenance for China and its neighbors, as well as vast reserves of oil and natural gas coveted by all the states in the region. China has consistently sought to monopolize those resources. To facilitate its control over the area, the PRC has established military installations on many of the islands, while using its coast guard and maritime militias to drive off the fishing boats and oil-drilling vessels of other states, even ramming some of those ships. On October 22, for example, a large Chinese coast guard vessel bumped into a smaller Philippine one seeking to reinforce a small outpost of Philippines Marines located on the Second Thomas Shoal, an islet claimed by both countries. In reaction to such moves, officials in Washington have repeatedly asserted that the US will assist allies affected by Chinese “bullying.” As Secretary of Defense Lloyd Austin declared last July at a meeting with Australian officials in Brisbane, “We’ll continue to support our allies and partners as they defend themselves from bullying behavior.” Three months later, following that clash at the Second Thomas Shoal, Washington reaffirmed its obligation to defend the Philippines under the 1951 Mutual Defense Treaty, should Filipino forces, ships, or aircraft come under armed attack, including “those of its coast guard — anywhere in the South China Sea.” In other words, a future clash between Chinese vessels and those of one of Washington’s treaty partners or close allies could easily escalate into a major confrontation. Just what form that might take or where it might lead is, of course, impossible to say. But it’s worth noting that, in recent South China Sea exercises, the US Indo-Pacific Command has conducted large-scale combat drills, involving multiple aircraft carriers, cruisers, destroyers and submarines. Any US military response on such a scale would undoubtedly prompt a comparable Chinese reaction, setting in motion a potential spiral of escalation. Assuming that China continues its policy of harassing the fishing and exploration activities of its southern neighbors, a clash of this sort could occur at almost any time. Resisting bellicose impulses Given the dangers in Taiwan and the South China Sea, Presidents Biden and Xi will have to exercise extreme patience and prudence to prevent the ignition of a full-blown crisis in 2024. Hopefully, the understanding they developed in San Francisco, along with new crisis-management tools like enhanced military-to-military communications, will help them manage any problems that do arise. In doing so, however, they will have to overcome both the escalatory dynamics built into those disputes and bellicose domestic pressures from powerful political and industrial factions that view intense military competition with the other side (if not necessarily war) as attractive and necessary. In both the US and China, vast military-industrial operations have blossomed, fed by mammoth government disbursements intended to bolster their ability to defeat the other’s military in all-out, high-tech combat. In this hothouse environment, military bureaucracies and arms-makers on each side have come to assume that perpetuating an environment of mutual suspicion and hostility could prove advantageous, leaving key politicians ever more obliged to shower them with money and power. On December 13 and 14, for example, the US Senate and House of Representatives, seemingly incapable of passing anything else, approved a record defense policy bill that authorized $886 billion in military spending in 2024 ($28 billion more than in 2023), with most of the increase earmarked for ships, planes and missiles intended primarily for a possible future war with China. American military leaders — and politicians representing districts with a high concentration of defense contractors — are sure to request even greater spending increases in future years to overcome “the China threat.” A similar dynamic fuels the funding efforts of top Chinese military-industrial officials, who no doubt are citing evidence of Washington’s drive to overpower China to demand a reciprocal buildup, including (all too ominously) of their country’s nuclear forces. In addition, in both countries, various political and media figures continue to benefit by harping on the “China threat” or the “America threat,” adding to the pressure on top officials to take strong action in response to any perceived provocation by the other side. That being the case, Presidents Biden and Xi are likely to face a series of demanding challenges in 2024 from the seemingly intractable disputes between their two nations. Under the best of circumstances, perhaps they’ll be able to avoid a major blow-up while making progress on less contentious issues like climate change and drug trafficking. To do so, however, they’ll have to resist powerful forces of entrenched bellicosity. If they can’t, the fierce wars in Ukraine and Gaza in 2023 could end up looking like relatively minor events as the two great powers face off against each other in a conflict that could all too literally take this planet to hell and back.

Fingers crossed.

Over the past two months, there has been a great deal of talk about the environmental implications of the pandemic. Some have looked for glimmers of hope, others have predicted that we will shortly return to the status quo. I fear that the biggest outcome of the pandemic will not be its death toll nor its effects on the climate, but its impacts on geopolitics. Specifically, the deteriorating relationship between China and the USA may lead to a Second Cold War. If this cold war leads to an all-out GDP race as the original one did, the consequences for humanity will far outweigh the direct human health impacts of the pandemic.

A Second Cold War

Frédéric Bastiat famously claimed that “if goods don’t cross borders, soldiers will.”

Bastiat argued that free trade between countries could reduce international conflict because trade forges connections between nations and gives each country an incentive to avoid war with its trading partners. If every nation were an economic island, the lack of positive interaction created by trade could leave more room for conflict. Two hundred years after Bastiat, libertarians take this idea as gospel. Unfortunately, not everyone does. But as recent research shows, the historical evidence confirms Bastiat’s famous claim.

4.4 Scenario 4. Trade war will escalate into Hot World War III

A trade war can escalate from Cold to Hot stage, which is especially unwanted scenario considering that the US allows limited use of nuclear weapon[s]. According to Terence Tai-Leung Chong & Xiaoyang Li, the trade conflict between China and the US is of fundamental nature and it cannot be easily resolved [29]. The conflict is associated with the race for global economic domination. The US has a serious advantage in cyberspace and it seeks to “digitally colonize” the global economy. According to Ashmanov, almost all neural platforms in the world are US-based, including first of all those belonging to Google and Facebook [35]. “The US shows with its actions, that they are ready to easily throw any inconvenient contracts and obligations away into the trash can, and also to ignore the UN and other international organizations, granting itself the right for unilateral military actions, the US is moving towards the role associated with the British Empire after the World War I” [6]. This scenario seems unlikely now, but it is not excluded.

We have shown how heightened firm-level trade policy uncertainty during the trade war leads to reductions in firm-level investment, R&D expenditures and profits for Chinese listed firms. However, our results may be capturing instead how rising U.S. tariffs and Chinese retaliatory tariffs have negatively affected Chinese firms directly, by reducing demand for Chinese exports or by increasing the cost of imported inputs. For this reason, it is important to validate that the trade policy uncertainty channel effects on firm operational outcomes is present when the direct impacts of tariffs is included. To this end, we augment our baseline equations (4) and (5) with U.S. and Chinese tariff exposure measures as follows:

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America risks falling behind in its response to climate change, a senior executive for one of China's largest solar equipment makers has warned, in a response to President Joe Biden's introduction of steep tariffs on $18 billion of Chinese imports.

In an interview with the Financial Times, Zhou Shijun, vice president of marketing for Arctech, which makes mounting systems for solar projects, said protectionism of the sort announced last week would "come back to haunt" the development of the U.S. renewable energy industry. Rather than engaging in trade wars, Zhou said, western governments should “let the best technology win” in order to accelerate the “irreversible and inevitable” energy transition in the context of breakneck global warming.

The U.S. and China are economically interdependent. The U.S. is China’s largest export market, and China is the U.S.’s largest import market. China relies on the U.S. for roughly $580 billion of exports per year, total foreign direct investments of $124 billion, joint ventures in high-growth industries, and more. The U.S. relies on China for economic growth in investments, people flow, idea flows, and trade in key industries. Estimates suggest that decoupling would cost the American aviation industry up to $875 billion by 2038; the semiconductor industry up to $159 billion and 100,000 jobs; the medical services industry more than $479 billion over the next decade; and more.

Trade wars have far-reaching effects on the global economy and international trade. They disrupt supply chains, hinder economic growth, and create uncertainties for businesses. Higher consumer prices and inflation can impact purchasing power and consumption patterns. The resulting uncertainty also deters investment decisions and can strain international relations. As trade wars persist, it is crucial for countries to seek constructive dialogue and find mutually beneficial solutions to resolve trade disputes, promoting stability and sustainable economic growth on a global scale.

Economic Impact and GDP Growth

Editor's note: The ultimate results of the phase one trade deal between China and the United States — and the trade war that preceded it — have significantly hurt the American economy without solving the underlying economic concerns that the trade war was meant to resolve, writes Ryan Hass and Abraham Denmark. The consequences that have followed in the wake of the economic clash have served to exacerbate bilateral relations. This piece originally appeared in SupChina.

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Sixth, any trade war launched in the intellectual property area will likely lead to collateral damages and unintended consequences in other trade or trade-related areas. Even worse, the resulting financial losses could far exceed the gains made in the intellectual property area. To illustrate the difficult trade-offs confronting the USTR, there is no better example than the strategic efforts that China took in the mid-1990s to pit US domestic interests against each other. In response to the United States’ trade threats in 1995, China suspended the negotiations with American automakers over the creation of local joint ventures to manufacture mini-vans and passenger cars. When the United States deployed similar coercive tactics a year later, Premier Li Peng played the ‘Europe card’ and went to France to sign a $1.5 billion order for 30 short-haul Airbus planes. By dividing the US business community, China successfully undermined the effectiveness of the USTR’s coercive tactics and the possibility for a trade war (Zeng, 2004, p. 52). As one of the editors of this volume declared, ‘the dispute over intellectual property protection exposed a fundamental dilemma in U.S. trade policy toward China: the United States could not punish China for its misbehavior without negatively affecting many powerful and active domestic constituents’ (ibid., p. 170).

A yearslong malicious cyber operation spearheaded by the notorious Chinese state actor, APT 41, has siphoned off an estimated trillions in intellectual property theft from approximately 30 multinational companies within the manufacturing, energy and pharmaceutical sectors.

A new report by Boston-based cybersecurity firm, Cybereason, has unearthed a malicious campaign — dubbed Operation CuckooBees — exfiltrating hundreds of gigabytes of intellectual property and sensitive data, including blueprints, diagrams, formulas, and manufacturing-related proprietary data from multiple intrusions, spanning technology and manufacturing companies in North America, Europe, and Asia.

China is America’s nemesis when it comes to economic espionage. About 80 per cent of all economic espionage prosecutions brought by the US Department of Justice allege conduct that would benefit the Chinese state. One 2017 estimate put the cost to the US of stolen trade secrets, pirated software and counterfeiting by China at between $225bn and $600bn a year. A new series of Financial Times podcasts on the US-China tech rivalry quotes US intelligence sources as saying the Chinese Communist party’s drive to acquire US intellectual property is becoming “more and more aggressive”.

This characterisation follows a statement in 2020 by FBI director Christopher Wray. He said that counter-intelligence and espionage from China represent the “greatest long-term threat” to US economic vitality. Such thefts, he added, amount to one of the largest transfers of wealth in human history.

In US President Joe Biden’s first big speech to Congress last month, he cast US-China relations as a battle for the century, with intellectual property as one of the key issues.

Speaking about his discussions with Chinese President Xi Jinping, Biden said: “America will stand up to unfair trade practices that undercut American workers and American industries, like subsidies from [the] state to state-owned operations and enterprises and the theft of American technology and intellectual property [IP].”

At a time when Congress and US law enforcement agencies are increasingly worried about foreign theft of American intellectual property (IP), President Biden’s trade representative is retreating from the fight to defend America’s IP rights abroad.

That’s the main takeaway from the 2024 Special 301 Report released on April 25th by the United States Trade Representative (USTR). The annual document surveys whether US trade partners are providing “adequate and effective” protection of IP rights, including patents, for US entities and persons that rely on IP protection and enforcement globally.

U.S. Patent and Trademark Office Director Kathi Vidal said on Tuesday that intellectual property rights (IPR) continue to be a main concern for U.S. businesses in China, and they face significant challenges with infringement.

"Whether it's insufficient deterrence for infringement, challenges to pharmaceutical related patents, or the misappropriation of trade secrets, intellectual property rights protection and enforcement remain a key issue of concern in the U.S.-China bilateral relationship," Vidal said at an event with attendees from the U.S. business community and legal fields in Beijing.

In short, the increasingly offensive use of an offensive US friendshoring policy will make it more challenging to manage US-China strategic competition, and make a military conflict—with disastrous global consequences—more not less likely. Containing China’s high-tech development will make it more difficult to encourage China to cooperate with the United States in other areas, such as climate change and disease control, among other global issues. Despite Biden’s intention to “seek competition and not conflict” with China, the US-China relationship continues to deteriorate. The stakes are rising for all.

Overall, China’s IP regime has made significant strides in just a few decades. For instance, China’s world leadership in patent quantity—though not in quality—signals its commitment to develop a robust innovation ecosystem at home. Minimum damage payouts for violations have continually increased, as have durations of patent protection. China even became the most litigious country in terms of the number of IP-related cases as early as 2005, and the number of cases has increased at a rate of over 40 percent per year for the past two years.

In 2014, China debuted three specialized IP courts, and there are as many as 19 more in the pipeline. And contrary to popular expectations, foreign plaintiffs have actually fared better in patent litigation in these courts than their Chinese counterparts. Even the 2016 Special 301 Report by the generally bellicose USTR noted “[w]elcome developments” and “progress toward effective protection and enforcement of IPR in China.” China now ranks second globally (excluding tax haven countries) in annual spending on acquisition of foreign IP as well as in gross research and development expenditure. In short, change is occurring at China’s own initiative, and U.S. companies have taken note: In a American Chamber of Commerce in China survey, 96 percent of respondents stated in 2018 that China’s enforcement of IP rights improved or stayed the same in the last five years compared with 86 percent in 2014.

All that said, it would be inaccurate to describe Chinese IP law as thoroughly protective for either domestic or foreign innovators. Along with the aforementioned trademark and patent subsidies, considerable controversy stems from "forced technology transfer" policies. According to the University of Oxford's Business Law Blog, foreign companies looking to do business in China must turn over their technology to local firms or be denied the right to operate within China. This effectively means turning over the blueprints (literal or otherwise) to such technology — which is all but equivalent to surrendering the IP. It creates considerable opportunities for infringement, fraud and corruption. Also, in disputes with foreign firms, some local IP courts still markedly favor domestic organizations.

Chinese government representatives often resent such accusations of bias or corruption. In their view, the deals represent friendly agreements between businesses, and courts' decisions are not politically motivated. While Oxford noted that FTT guidelines are not as pervasive now as they were a few years ago, they have yet to disappear altogether.