Is This a New Cold War? What History Actually Teaches About China and the US

Book: Financial Cold War
Author: James A. Fok
ISBN: 9781119862765

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Chapter 6 opens with a quote from Helmut Schmidt: monetary policy is foreign policy. Fok then walks through centuries of European power politics to make a simple point. National interest drives alliances, but leaders who misread their moment can drag everyone into catastrophe.

Today China and America are in conflict. That does not mean war is inevitable. It also does not mean war is impossible. A lot depends on individual decisions by people in power.

The “New Cold War” label is tempting and dangerous

Many people frame current tensions as a New Cold War. Capitalism vs communism became capitalism vs authoritarianism. Liberal democracy vs one-party rule. The parallels are obvious.

But Fok warns against blindly copying the old playbook. The circumstances are different in ways that matter.

American hawks often assume the US would win. After World War II, America’s economy dwarfed the Soviet Union’s. The US had a nuclear monopoly. Today China’s economy is already larger than America’s on a purchasing power basis. Unlike the USSR’s stagnant model, China mixed private enterprise with state planning and delivered decades of rising living standards. America’s infrastructure is aging. Social divisions run deep. A “winner” in any conflict is not guaranteed to be Washington.

China has its own blind spot. Four decades of success may breed overconfidence. Rapid growth required deep reforms and outside support. Structural challenges remain. Without continued adaptation, there is no guarantee the growth story continues.

Economic ties are not a peace guarantee

Trade and investment linked China and America in ways the US and USSR never were. George Kennan’s 1946 Long Telegram described America’s stake in the Soviet Union as remarkably small. No investments to guard. No trade to lose. Almost no citizens to protect.

China and the US are the opposite. Decoupling would hurt both sides badly. But that is not a reason for complacency.

Before World War I, Germany and Britain were major trading partners. Lloyd’s of London insured much of the German merchant fleet. Norman Angell’s 1910 bestseller The Great Illusion argued that economic interdependence made war irrational. Kaiser Wilhelm read it with interest. War came anyway in 1914.

Mutual dependency does not prevent conflict. It only guarantees that conflict will be more destructive.

Some Americans hope great power rivalry will force needed domestic reforms, the way the Soviet threat once did. Historian Adam Tooze calls this putting the cart before the horse. The Cold War ended without a direct US-Soviet war. That does not make it a model to repeat. The costs were horrific. We still pay for them.

A close call that almost ended everything

On September 26, 1983, Soviet Lieutenant Colonel Stanislav Petrov sat in a bunker near Moscow. His early-warning system reported an incoming American ICBM. Protocol required him to notify superiors, who would launch a counterattack under mutually assured destruction.

Petrov hesitated. A real first strike would involve hundreds of missiles, not one. When the system reported four more incoming warheads, he still waited. Confirmation never came. One man’s judgment may have prevented nuclear war.

That was one of more than a dozen nuclear close calls during the Cold War. Proxy wars killed millions across Korea, Indochina, Africa, and Latin America. The arms race consumed resources that could have gone to schools, hospitals, and roads. The USSR spent 15-17% of GDP on defense in 1977. US military spending that year matched total public spending on education.

Given all that, why would anyone welcome a New Cold War?

The upside nobody talks about

Fok does not pretend the Cold War was all darkness. For Western democracies it was, on balance, a period of rising opportunity. Competition was fought on many fronts: the space race, Olympic sports, even chess.

Kennedy’s 1962 moon speech launched the $25.4 billion Apollo program. At peak funding, Apollo consumed 2.2% of US GDP. Sputnik in 1957 terrified Americans. The technology race became a major election issue.

The Marshall Plan transferred $17 billion to Western Europe between 1947 and 1952. Competition with communism drove science education, R&D spending, and social welfare expansion. OECD public social spending rose from 10.6% of GDP in 1960 to 21.5% in 1990. The Civil Rights Movement gained leverage because America’s denial of rights at home undermined its anti-communist message abroad.

Progressive taxation followed. Top marginal income tax rates averaged 81% in the US and 89% in the UK between 1932 and 1980. Wealth concentration fell sharply. Postwar growth was strong.

But Fok is clear: you do not need a New Cold War to get progressive taxes and public investment. You need political vision and the will to use it. That vision faded in the 1970s as oil shocks, competition from emerging markets, and stagnation opened the door to free market ideology.

Tax me if you can

The chapter’s tax section is where domestic policy meets geopolitics. State power depends on fiscal strength. European states built tax capacity in the 1600s while Ottoman and Chinese tax rates stayed flat. By the mid-1800s European tax receipts ran 8-10% of national income versus 1-2% in China and the Ottoman Empire.

After Bretton Woods, capital controls gradually came down. Thatcher abolished UK capital controls in 1979. France followed. Container shipping and global outsourcing made corporate tax planning explode.

A 1996 US Treasury decision accidentally let multinationals treat patent income like active foreign business income. Political interference blocked a fix. Around 40% of multinational profits get shifted to low-tax jurisdictions. US effective corporate tax rates fell from over 35% in the mid-1990s to below 20% after Trump’s 2017 reforms.

Luxembourg’s LuxLeaks scandal and Ireland’s 0.005% effective rate for Apple in 2014 show how small countries compete for corporate revenue. Fiscal competition pushes tax onto labor through VAT and property taxes. Capital is mobile. Workers are not.

The wealthy benefit most. Carried interest lets private equity executives pay 20% capital gains rates instead of 37% income tax. China levies no capital gains or inheritance tax. Personal income tax is only about 6.5% of total Chinese tax revenue.

Rising inequality feeds populist nationalism. People focus on national identity and security instead of systemic causes. Politicians exploit that. Protectionism and anti-immigrant sentiment follow.

Where this leaves us

Fok’s Chapter 6 opening is a warning wrapped in history. The New Cold War framing is seductive but incomplete. China is not the USSR. Economic integration is deeper and more dangerous if it breaks. The old Cold War had horrors and accidental near-misses we should not romanticize.

And underneath the geopolitical drama sits a quieter fight: who pays taxes, who avoids them, and what that does to social cohesion in both countries.

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