US, China, and the myth of a new cold war

The rivalry between the United States and China is often described as a new Cold War. While the comparison is tempting, it is also misleading.

The Cold War (US vs USSR) was characterized by ideological separation (Communism vs free market), minimal economic interaction, and rigid alliances (NATO vs Warsaw). Present conditions are materially different.

The US and China are deeply economically intertwined. Trade volumes are substantial. Supply chains are integrated. Financial markets are linked. Neither side can afford full disengagement without significant self-inflicted damage.

What is happening instead is selective rivalry to gain advantage in the terms of trade and control over resources.

Both countries are focusing on the sectors they consider strategically sensitive, e.g., advanced technology, defense-related manufacturing, data infrastructure, and critical resources. In these areas, they are adopting a policy of control rather than cooperation. In other sectors, pragmatic engagement continues.

Indubitably, this selective approach is creating complexity for businesses and investors. Regulations are becoming unpredictable and volatile. Logistic problems are cropping up more frequently. Policies are being guided often by strategic compulsions rather than economic prudence.

Companies that operate across jurisdictions are required to navigate conflicting regulatory expectations. Investors face uncertainty that cannot be easily priced. Policies shift incrementally, often without a clear endpoint.

Unlike the Cold War, today’s competition lacks clear boundaries. There are no committed allies or adversaries. Countries chose sides based on issues and expediency rather than ideology or strategic commitments. Geopolitical alignments are temporary and vary by issues, sectors, and moment in time. This ambiguity in international relations is not accidental. It reflects deeper and wider mutual dependence and the high cost of confrontation.

Framing this rivalry as a Cold War simplifies reality but obscures risk. The real challenge lies in managing partial decoupling without triggering systemic instability. For markets, this means prolonged uncertainty rather than abrupt rupture. Understanding this distinction helps avoid overreaction to headlines while remaining alert to structural shifts.

India has traditionally followed a policy of non-alignment. It has mostly maintained good transactional relationships with the US, China, Japan, GCC and Europe. The relations with Russia (and erstwhile USSR) had been strategic without any commitment or ideological alignment. In the past 15 years this relationship has also become incrementally transactional.

The current trade negotiations with the US and other countries must be seen in this context. Tariff and non-tariff measures taken by the US, Mexico, Canada etc. are guided by the immediate considerations and are temporary. These do introduce some degree of uncertainty in business outlook, but treating them as permanent might be an expensive overreaction.

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