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If The US is Broke, Can We Fight a Cold War With China?

China Air Force
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EDITORS NOTE: If the U.S. government is going to spend whatever is necessary to keep the economy that decision is likely to add several trillion dollars to an already impressive deficit this year. This threatens to harm the U.S. defense budget for years to come.

The coronavirus has united Americans against Beijing’s aggressions, but it will also devastate the Pentagon budget.

America seems to be on the verge of declaring cold war on China, while simultaneously weakening its own ability to wage such a conflict. Across the ideological spectrum, U.S. hostility to China has surged just as financial fallout of the pandemic threatens to harm the U.S. defense budget for years to come.

The U.S. may thus be entering a period like the beginning of the original Cold War, when it decided to confront the Soviet Union on a shoestring. The U.S. ultimately won that Cold War, of course, but that analogy should be less comforting than it first seems because it reminds us that a cash-strapped approach to competition can be an extremely risky one.

For several years, American national security elites have mostly called for a more competitive strategy toward China, while the American people have not been so certain. Now the coronavirus has convinced many Americans that the Chinese government poses not just some nebulous threat to the U.S.-led international order, but a direct danger to their prosperity and well-being. Overwhelming majorities of Republicans and Democrats now favor a China policy as tough as or tougher than the Donald Trump administration’s current stance. With an eye to November, Trump and presumptive Democratic candidate Joe Biden are competing over who is the bigger China hawk. As economic decoupling accelerates, and rhetoric and policies harden on both sides, the U.S.-China cold war that pundits have been predicting may actually be unfolding.

Yet the coronavirus is also threatening to put the U.S. at a strategic disadvantage. The issue here isn’t Trump’s inept handling of the crisis or his alienation of U.S. allies, as damaging as those factors have been. The problem is one of budgetary arithmetic.

The U.S. government has decided, correctly, to spend whatever is necessary to keep the economy alive even as most normal commerce is suffocated. That decision is likely to add several trillion dollars to an already impressive deficit this year. We could easily see a repeat performance next year. Spiraling deficits will eventually produce a budgetary reckoning, with the Defense Department likely to be one of the victims.

Read the full Op/Ed piece on Bloomberg

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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