It’s not just the US resetting its relationship with China – and that’s bad for everyone

As east and west separate, China will build up separate standards and technology will become the weapon in a new cold war, writes Hamish McRae

Businesses around the world will still buy stuff from China, but they won’t rely fundamentally on Chinese exports if they can possibly avoid doing so (Getty)

The reset of China’s relationship with America continues apace – but not just with America, with the rest of the world too. Right now it is being driven by Donald Trump, but it will continue long after he has left the White House.

His latest attack, that China could face consequences if it were knowingly responsible for the outbreak, has been dismissed by his opponents as electoral posturing – and it is. But if you look at this from a long-term global perspective, rather than a short-term electoral one, what he said was a statement of the obvious: “If it was a mistake, a mistake is a mistake. But if they were knowingly responsible, yeah, I mean, then sure there should be consequences.”

Indeed, there will be consequences – even if it was a mistake.

The big point from an American perspective is that the two countries are in the early stages of a tussle for world leadership that will last for a generation. China’s achievements since the economic reforms started by Deng Xiaoping in 1978 have been astounding and, for an increasing proportion of the Chinese people, quite wonderful. There are and will continue to be profound concerns about the costs of its growth, but rightly or wrongly the prevailing view in the US until Trump became president was to welcome it.

That view has now been swept aside. This is not just about America; it is about the world.

Let’s assume it was indeed a mistake: that China was tardy in tackling the emergence of this novel virus and behaved badly to those people, including medical staff, who revealed what was happening, but importantly there was no explicit cover-up. What then?

One effect will be that everyone will expect something like this to happen again, so companies around the world will rely less on China in their supply chains. This will transform the world economy to almost as great an extent as has the switching of supply chains to China over the past 20 years. Businesses around the world will still buy stuff from China, but they won’t rely fundamentally on Chinese exports if they can possibly avoid doing so. Security of supply will matter more than price.

Second, there will be more caution about transferring technology to China. Chinese technology has itself developed and in some areas is ahead of the west. But at the moment the net flow of know-how is west to east. If China is shown to be slow in revealing its experience in one key area – public health – the idea of ever-freer transfers of knowledge will die. Yes, there will be continued cooperation in some areas, but there will be a brake on this that will remain for many years.

Third, Chinese investment in the developed west will be suspect. In many regards that will be a shame. Look how Geely has revived Volvo in Sweden and London Taxis in the UK: huge investment and knowledge transfer in both. Huawei is understandably concerned about its position in helping the UK run out its 5G network, but I understand that its mobile phones will not have access to Google and Apple’s contact tracing systems.

The trouble here is that over time China will build up separate standards from the west. Everyone is likely to lose as a result. Emerging economies will have to choose which side of the technological fence to jump, and technology will become a weapon in a new cold war.

Fourth, while technological competition is sometimes welcome – look at the way different pharmaceutical consortia are competing to find a vaccine – distrust will spill out into other areas where there should be a common goal. Tackling climate change is the key example where the world has to pull together. To put it at its lowest, such cooperation between the world’s two largest economies will be tougher in the future. It may become impossible, and that would be troubling indeed.

Finally, a fifth point. All the above is predicated on the assumption that this was indeed simply an honest mistake by China. If it proves to be the case that it was not, then a cloud would come over the world that will take a decade, maybe longer, to disperse.