In October 1962 the world held its breath as a tense political standoff between two mighty hegemonic forces came to a head.

On the back of ongoing inflammatory actions from both the United States of America and the Soviet Union and a communication breakdown which nearly spelled disaster, the Cuban Missile Crisis is widely regarded as the closest mankind has ever come to full-scale nuclear war.

With the world on edge, negotiations between US President John F. Kennedy and Soviet Union leader Nikita Khrushchev led to agreement, de-escalation and lasting change in the relationship and lines of communication between Washington and Moscow. 

Kennedy was lauded at home, Khrushchev was eventually dethroned, and the world was forever changed.

There is a lot to be learned from history books. While nuclear war seems a relatively distant prospect compared with those heady days of 1962, we enter 2019 with hegemonic powers butting heads.

The trade war between the United States and China was one of the more destabilising economic bouts of 2018, and as of the end of January the reverberating tensions show no sign of abating.

In the star-spangled trunks is the tweethappy US President Donald J Trump, operating on a protectionist, America-first platform which led to tariffs on myriad Chinese products over the last year.

Solar panels, steel, aluminium, electronic goods and washing machines are among those products to feel the brunt of Trump’s economic right hook.

In the red trunks is Chinese President Xi Jinping, the leader of the world’s largest economy which has retaliated with significant tariffs of its own – some targeted to most heavily impact the areas of the US where Trump needs votes to win the 2020 election.

The punches have landed, but the rules of the fight appear to be changing. Where in the beginning it seemed purely economic, the vocal mistrust between the sparring parties seems to be spreading.

One only needs to look at Huawei. The China tech giant has fallen afoul of the US in recent times, with accusations by the latter’s government of trade secret theft and violations of US sanctions on Iran.

The company’s Chief Financial Officer, Meng Wanzhao, was arrested in Canada in January, and at time of writing was facing extradition to the US to face charges for
bank fraud.

Broader than any individual charge placed on Huawei or its management is the statement in late January by the US Senate Select Committee on Intelligence in its Worldwide Threat Assessment of the US Intelligence Community of fears relating to Chinese IT firms.

The implications for Australia will be very real ones, 
and I don’t think we’ve come to grips with that yet.

We are concerned about the potential for Chinese intelligence and security services to use Chinese information technology firms as routine and systemic espionage platforms against the United States and its allies,” the report said.

Australia has so far followed the US lead, banning Huawei equipment in the rollout of its 5G network. And as a nation economically and geographically tied to China and ideologically aligned with the US, Australia is only going to have more tough decisions to make.

That’s the view of Allan Gyngell AO, board member at independent public policy initiative China Matters, National President of the Australian Institute of International Affairs, and the founding Executive Director of the Lowy Institute for International Policy.

Professor Gyngell, who was a senior policy advisor to Prime Minister Paul Keating during his period in the top job and Director-General of intelligence agency the Australian Office of National Assessments from 2009 to 2013, told Leader the trade war of 2018 was becoming something much greater – and difficult for Australia, given its geographic, economic and ideological ties with both sides.

“It looked at first as though we were seeing Trump and the US in a fairly traditional trade dispute, and that a bit more market access and a few concessions on things like IP would get everything back to normal,” he told Leader.

“I don’t think that’s happening now, I think what’s panned out much quicker than anticipated is a deeper division based on geopolitics rather than trade itself.

“There’s a danger of a new bipolarisation of the world. There’s a growing sense in the US, on all sides of US politics, that it can’t allow China to become a peer competitor.

“We’re wrong to see this as simply just another trade dispute – it’s looking deeper and different than what we might have expected 12 months ago. The implications for Australia will be very real ones, and I don’t think we’ve come to grips with that yet.”

For many years the Australian political rhetoric has implied that there’s no need to pick sides between China and the US. Professor Gyngell believes if things escalate a harder choice may need to be made.

“We certainly don’t want to have to choose, but the reality is that the need to choose could become very real,” he said.

“We’re already starting to see it in the decision on Huawei and 5G and so on.”

Business implications

One of the complicating factors in the 21st century equivalent of a Cold War would be the blurring of lines about what constitutes a weapon. 

The impact on Western Australia, with a primary economy on the export of raw 
commodities to Asia for processing, could be equally challenging.

A nuclear weapon is recognisable as a weapon as it serves no other purpose. But Professor Gyngell said the definition what constitutes a weapon in a new-age conflict would be less clear.

“In the 21st century military competition will be about data and artificial intelligence, biotechnology and genetic engineering and so on,” he said.

“Almost everything is now dual use, and can be seen in military terms.

“America has been talking about banning solar panels from Huawei in the US, and there’s been discussions around whether we should permit Chinese investment in healthcare systems here.

“This sort of competition is percolating through to very many of the dimensions of our economy, and Australia is going to be caught up in a broader contest.”

The advice for business leaders is that with the geopolitical environment shifting, more thought will need to be given to the broader context under which business decisions are made.

“They need to lift their eyes from their own immediate business and see that they’ll need to pit their own organisations into this broader geopolitical and geoeconomic context,” Professor Gyngell said.

Tremors in WA

“They have to be alert to a changing environment around them, be that the physical environment or the geopolitical environment.”

The impact on Western Australia, with a primary economy on the export of raw commodities to Asia for processing, could be equally challenging.

Were it not for the Chinese government’s willingness to subsidise state steelmakers since the introduction of a 25 per cent tariff on the metal by the US last year, the state would already be wearing the economic flow-on effects, according to Perth USAsia Centre Research Director Jeffrey Wilson.

Dr Wilson is a political scientist whose expertise lies in the politics of trade agreements and Australia’s economic ties with Asia. He has previously completed research on steel networks in the AsiaPacific region and the politics of ChinaAustralia mining investment.

He said while Australia was exempt from US steel tariffs the fact Australian iron ore was a primary component of the tariffed Chinese steel meant there was an indirect tax on Australia.

Dr Wilson urged business leaders not to take the present economic circumstances lightly.

“Being a monoeconomy on iron ore is bad news for everyone when the world’s worst trade dispute in a century breaks out and it happens to be over your commodity,” he said.

“It also teaches us not to take a set of economic circumstances for granted. For consultancy firms, for managers and board members and decision makers, it means you have to think differently about risk assessments on investments.

“You can no longer work to the external conditions and assumptions that have been in place for your whole career.”

Dr Wilson said it was unclear how long the Chinese government could absorb the losses of its steel industry as a result of the trade war and shield the blow for WA. 

What does seem clear is that the power struggle between the US and China may have flared up in 2018, and won’t be going away anytime soon.

Uncertain future 

Professor Gyngell believes last year will prove one for the history books.

“I think we’re going to look back on 2018 as one of the decisive years in which there was a real step-change in the international system,” he said.

“My own view is that the post-war international order established in 1945 by the victors of World War II has ended, and we’re not quite sure what’s coming next. 

“This makes it particularly difficult to formulate policy responses. But Australia won’t have any option, we are going to have to do more for ourselves and not depend on others, because at the end of the day our interests are going to be different in all of this from our major trading partner China and our principal ally the United States.”

Fed through Twitter and inflated by ego, the Trump-Xi bout of 2018-19 may end up being the undercard to a bigger fight, but it’s apparent Australia and the business world should be watching with interest at how the blows land.

Jack McGinn is a Journalist at The West Australian Newspapers and is a writer for 'Leader', AIM WA's magazine for members.