The ongoing strategic rivalry between the United States and China has been dubbed the Cold War of the 21st century. Much like its forerunner – which saw a multi-decade contest between capitalism and communism – the current rivalry between Washington and Beijing lays out competing political and economic systems and visions for the future. The fault lines between the two vastly different approaches have created stark choices for policymakers and businesses to contend with. Most notably, they have highlighted trade-offs and tensions in the pursuit of economic prosperity between authoritarianism and democracy, stability and liberty, and nationalism and globalism.

While these tensions have bubbled under the surface for some time – first through periodic currency wars then through a Trump-induced trade war and more recently through technological hostilities – they have yet to escalate into sustained conflict. This low level of competitive intensity and the economic interdependence between the two countries had supported the belief that escalation would be contained and controlled, despite episodes of turmoil.

However, recent events have rendered this view less certain.

The fallout from the Covid-19 pandemic has seen a significant uptick in tensions which seem to be approaching an inflection point. With Trump routinely calling the coronavirus the “China virus” and “Kung Flu”, withdrawing funding from the World Health Organisation due to allegations of Chinese favouritism, and generally scapegoating China ahead of the upcoming US election, China has fallen firmly into Washington’s firing line.

Discounting the theatrical nature of Trump’s methods, the approach is no doubt reflective of an underlying American enmity towards China, and a commitment to curb its expanding global influence. China has not backed down in the face of these actions. Moreover, its quick containment of the virus and its strong economic and healthcare diplomacy efforts (including the supply of cash and medical resources to vulnerable countries, most notably in Eastern Europe) have allowed it to exploit the leadership vacuum traditionally filled by the US.

With financial, geopolitical and ideological battle lines being drawn, there is now a distinct possibility of this cold war escalating into something “hotter”.

Cynics… believe that the strategy of lending money at seductive rates – only to seize strategic assets of vulnerable nations – is a modern form of imperialist exploitation. 

The implications of such a rupture would be profound. In a world where isolationist America and imperial China were to go head to head, such a development would trigger contagion and strategic realignment across the globe. As was the case during the original Cold War, developing countries would become a theatre for competition in this game of geopolitical chess. As the powers compete for access and influence, and ultimately economic gain, countries that provide strategic value will be heavily courted; they will find themselves at crossroads, needing to make critical choices that best serve their national interests.

For countries that fall within this orbit, the calculus will centre around which side presents the more compelling proposition, and where they are able to achieve maximum diplomatic and financial returns. Determining how, when and on what terms to align with which power will be the multi-billion-dollar dilemma.

Three areas in particular stand out as arenas of contestation. First, nations should re-evaluate their international debt and equity funding options. Second, there is an opportunity to redesign international institutions on a more equal footing. Third, nations need to carefully consider the technological trade routes currently being laid down.

Funding dilemmas – between a rock and a hard place?

Caught with their pants down from the Covid-19-induced economic shock, many emerging markets are now scrambling for funding. External sources of financial assistance, notably IMF funding and Chinese assistance, have emerged as the primary creditor options.

Enamoured by the lack of conditionality and less expensive nature of Chinese arrangements, a number of countries in Africa, Eastern Europe and Asia have already fallen for the charms of Beijing. Such loans, which typically assume the form of cash-for-infrastructure, and are heavily aligned to China’s flagship geostrategic project (The Belt and Road Initiative), have enjoyed widespread support among emerging nations. Enthusiasts argue that these present a compelling alternative to the paternalistic and strict nature of Western financing arrangements, while simultaneously helping to plug the pervasive infrastructure deficits that exist in these countries. 

Cynics, however, believe that the strategy of lending money at seductive rates – only to seize strategic assets of vulnerable nations – is a modern form of imperialist exploitation. 

While leaders have favoured such instruments because they are perceived to have “no strings attached”, the opaque nature of these loans and allegations of debt-trap diplomacy have dampened some enthusiasm for Beijing in recent times.

Meanwhile, the recent uptick in IMF involvement across Africa may offer an opportunity for the US to launch a charm offensive and reverse some of the lingering resentment stemming from the structural adjustment programmes of previous decades. While many countries maintain an ideological aversion to the IMF due to the perceived negative impact on sovereignty, a lack of alternatives could see the tables turn in Washington’s favour –  especially in light of China’s reluctance to provide widespread debt forgiveness. Taking advantage of such an opportunity would present a significant return on investment if it were to win hearts and minds and cement a more permanent allegiance to the United States.

Institutional architecture – a shifting balance of power?

Donald Trump’s May 2020 announcement that the US would terminate its relationship with the World Health Organisation over its handling of the Covid-19 pandemic is the latest in a long list of cracks emerging in the international institutions set up by Western powers in the aftermath of World War II.

The move follows a trend that can be traced back to the beginning of the Trump presidency in 2017, when the US announced it was pulling out of the Paris Agreement on climate change mitigation. Since then, the US has threatened to leave the World Trade Organisation over claims that China’s “economic imperialism” and anti-competitive trade policies are damaging to the other nations in the group. Movements advocating for the US to leave the United Nations are also gathering momentum.

The more recent WHO announcement is just further confirmation that the US is no longer the centre of the globalisation project. Indeed, all indications suggest the opposite – with the US turning inwards, it is effectively rejecting both its historical leadership role as well as the very institutions it helped craft.

Simultaneously, China’s intent to extend its global reach has seen it gradually increase its influence over those very same organisations; as is evidenced by the WHO and the UN siding with China over Taiwan’s inclusion and sovereignty.

Strategically, it makes sense for less powerful nations to align with the side where the balance of power is likely to shift towards in the future rather than where that power lies in the present.

As these old multilateral institutions begin to splinter from within, the question becomes, what comes next? Will the existing organisations survive a “management change” without the US’s support? If not, are we headed for a leaderless, fragmented new age of Balkanisation? Or will new institutions arise to replace the power vacuum left behind?

If the latter (more likely) option prevails, the questions then become which nations will have the controlling stake in the next generation of globalisation initiatives? And, what new interregional and international alliances will emerge? Absent the US, will the next generation of global organisations be shaped by China’s vision for the world or by a global emerging market alliance; or even possibly a global South consensus?

In the near term, following global economic and population growth patterns, China’s vision is likely to prevail. Looking further ahead, to the mid-century, there is an opportunity for the balance of power to shift towards India and Africa, along with their demographic dividend windows, as the world’s youngest economies come of age.

Strategically, it makes sense for less powerful nations to align with the side where the balance of power is likely to shift towards in the future rather than where that power lies in the present. Right now, the vision of the future presented by the leaderless, fragmented Western powers is a lot less compelling than China’s clear plans for increased dominance of the global stage. The trade-offs, of course, are that siding with one power could make an inadvertent enemy of the opposing faction. However, if smaller nations are strategic in how they approach their diplomatic relations with the respective global powers, there is a possibility to play the opposing powers off against each other, as Mauritius, Djibouti and Kenya have succeeded in doing. The countries have employed savvy economic diplomacy strategies – aimed at leveraging their geographic, military and strategic importance – for maximum financial gain.

That said, the strongest bargaining positions are available to nations and regions with deep enough economies and trading blocs of their own. For this reason, the best way for Africa to defend its own rapidly approaching demographic dividend is to accelerate the implementation of the African Union’s long overdue Continental Free Trade Area.

Technological highways – access or privacy?

George Orwell wrote, “Who controls the past, controls the future: who controls the present controls the past.” Perhaps a better way to put it is that those who control the medium, control the message. In the modern world, the medium is global telecoms, specifically the wifi networks established to enhance global connectivity.

China’s Huawei is currently the leading contender to own the controlling stake of the 5G networks that are set to dominate the telecommunications space for the foreseeable future. China is well aware of the strategic geopolitical advantage that soft-power technology represents to its future literal and figurative belt and road initiatives. China’s influence over Western technology usage goes beyond 5G networks. Western mass-adoption of Chinese-origin social media and communication apps, including as TikTok – security and surveillance concerns notwithstanding – illustrates just how much influence Chinese technology already has over Western business and culture. As of May 2020, there were 32.9 million US-based TikTok accounts.

Likewise, more powerful economies such as the US and the UK are well aware that the political and economic risks involved in allowing Chinese companies to set up virtual trading ports in strategic points within their national economies are likely to outweigh the infrastructure cost savings on offer – illustrated by regulatory hurdles implemented by these nations. Civil society activists across the democratic world have also expressed concerns over data security, personal privacy and freedom of speech linked to Chinese-controlled technology.

That said, the strategic threat Huawei’s 5G dominance poses is less about security and more about economic control over onramps and offramps to the virtual information highways that now represent the bulk of future global economic growth. According to Apptio’s “2018: The State of the Global Technology Economy” report, if the global technology sector was an independent nation, it would be the third-largest economic force on the planet after the US and China. According to Compita, the global information technology industry is likely to be worth $5.2-trillion in 2020.

As such, it makes sense that wealthier economies with robust telecommunications industries would choose to invest in their own 5G networks, even at a significant cost premium, rather than agree to a Faustian bargain with an increasingly dominant foreign power.

If the African continent can work together strategically, its trading bloc will become the global kingmaker; the deciding vote that determines whether the Western liberal capitalist view of the world or the Chinese centrally planned economic vision of the future prevails.

However, smaller, less-developed economies face a different set of trade-offs by allowing China to control their telecommunications networks. What emerging economies stand to gain, in terms of cheap communications, increased access to global markets, and economic opportunity, often far outweighs the potential loss of autonomy and freedom.

Indeed, in regions where internet access matters more to citizens than data privacy, there is more than one kind of freedom to be considered. Simply put, personal and national freedom is less useful where financial and practical (technological) freedom is lacking. As such, emerging economies in Africa and Asia are likely to feel justified in ceding control over their communications networks to Chinese players. In doing so, these nations will be entrenching their economic and political allegiances to Beijing over Washington; tacitly taking a side in the increasingly hot new cold war.

Reflect, recalibrate and renegotiate

With much of the rhetoric around the new cold war centring around the superficial question of who is “winning”, the time has come to recalibrate the geopolitical equation and for it to be seen through a different lens. Far from being a threat to the African continent, the conflict between Washington and Beijing offers a rare opportunity for emerging markets in general and Africa in particular to renegotiate terms of trade on a more level playing field.

By 2050, one in four people will be African. As the world’s youngest continent, Africa’s future is largely the future of the world’s economy. Foresighted nations will understand that getting African nations on their side may be their best chance at sustained economic growth over the next century. This presents African leaders with increased bargaining power at an opportune time, when virtually every significant global trade, finance and governance agreement is open for renegotiation.

The partnerships that African leaders choose – and the deals they strike now – will determine the success or failure of the continent. It is therefore essential to devise a calculus based on the continent’s future development needs rather than short-term gratification. This will require a strategic, rather than tactical approach, a huge element of positive agency, and learning from the mistakes of bygone eras.

If the African continent can work together strategically, its trading bloc will become the global kingmaker; the deciding vote that determines whether the Western liberal capitalist view of the world or the Chinese centrally planned economic vision of the future prevails.

Now, as diplomatic relations between Trump’s America and Xi Jinping’s China move from unofficially cold to openly heated, it’s up to Africa to fan the flames in its favour. DM

Ronak Gopaldas is a political economist, “pracademic”, writer and speaker. His work focuses on the intersection of politics, economics and business in Africa. He is currently a Director at Signal Risk, a Fellow at the Gordon Institute of Business Science and a Co-Founder of Mindflux Training. He was previously the Head of Country Risk at Rand Merchant Bank. He is a Tutu Fellow, and alumnus of the Asian Forum on Global Governance as well as the young African Leadership Initiative. @Ronak Gopaldas

Bronwyn Williams is an economist, futurist, and trend analyst. She is a partner and foresight lead at Flux Trends, where she consults to corporate and government leaders around the world on how to turn socioeconomic trends into actionable business strategy. She is also a frequent media commentator, speaker, and writer on “futurenomics” related topics. @bronwynwilliams