Experts worry that a U.S.-China cold war could turn hot: ‘Everyone’s waiting for the shoe to drop in Asia’

Jacob Helberg (left) Commissioner, United States-China Economic and and Security Review Commission and Ben Harburg (right), Managing Partner MSA Capital speaking at the Fortune Brainstorm Tech conference in Park City, Utah on July 16, 2024.

If there’s one thing both the U.S. Democratic and Republican parties can agree on, it’s being tough on China. The Biden administration has maintained, and even strengthened, tariffs on Chinese imports first imposed by the Trump administration.

A bill demanding the Chinese tech firm ByteDance to sell TikTok or face a U.S. ban of the social media app passed by wide bipartisan majorities in both the U.S. House of Representatives and Senate earlier this year.

Both political parties are increasingly aligned on the need to get tougher on China and Chinese companies. “Democrats and Republicans don’t even agree on what color the sky is, and they both voted for this bill,” Jacob Helberg, a commissioner on the United States-China Economic and Security Review Commission and a senior advisor to Palantir CEO Alex Karp, said at Fortune’s Brainstorm Tech conference on Monday.

Since joining the World Trade Organization over two decades ago, China has become the factory floor of the world and grown to become the world’s second-largest economy.

Several U.S. politicians now push the message that China’s growth has come at the expense of the U.S. economy. They also worry that China may quickly erode the U.S.’s technological advantage and Washington’s global influence.

Many of China’s trading partners are in the “middle powers group: The Brazils and Japans and Saudi Arabias of the world,” Ben Harburg, managing partner at MSA Capital, a China-focused venture capital firm, explained Monday. “And they’re dependent on China for their economic trajectory.”

Both Harburg and Helberg acknowledged China is trying to decouple from the U.S. yet called for different policy responses in order to maintain Washington’s leverage.

Harburg suggested the U.S. leverages “soft power” by allowing Chinese students to study in U.S. universities; that openness also encourages non-U.S. talent to stay and benefit the U.S. economy.

The Trump administration made it harder for prospective students to get a visa to study in the U.S., and also revoked the visas of some Chinese students, citing national security concerns. The COVID pandemic also sharply curtailed the ability and interest of Chinese students to study in the U.S. (Chinese students still make up the largest contingent of international students, though students from India together are in a close second place).

Almost 75% of international students want to stay and work in the U.S. after graduation, according to a 2022 report from FWD.us, an immigration reform advocacy organization.

Helberg, in contrast, argued that “American strength” was projected through the U.S.’s technological advantage. He agreed with the Biden administration’s current policy of export controls and support for domestic manufacturing as a way to maintain the U.S.’s lead, and in turn continue to deter China from more aggressive actions.

The ‘foothills of war’

On Monday, both Helberg and Harburg warned the fractious relationship between the U.S. and China could become something more dangerous.

“Everyone is waiting for the shoe to drop in Asia,” Helberg warned.

Harburg, borrowing a phrase from Henry Kissinger, warned that the U.S. and China are in the “foothills of war.”

U.S. military officials worry that China wants to quickly gain the ability to invade Taiwan, which Beijing considers a breakaway province, by the end of the decade. Over 60% of U.S. business economists consider a conflict between mainland China and Taiwan, even if it doesn’t develop into an outright war, at least a “moderate possibility.”

Analysts also worry that a possible miscalculation in the hotly contested South China Sea could also trigger a wider conflict.

U.S. Defense Secretary Lloyd Austin recently downplayed the possibility of war with China, saying it was neither imminent nor unavoidable.

On Monday, both speakers agreed that whoever wins in the U.S. presidential elections this November will need to maintain the drive to reindustrialize the country, though support for education or improve incentives for companies to invest in U.S. manufacturing.

Reshoring supply chains from China and “rebuilding American strength” is “the best policy we can have for the 2020s and 2030s,” Helberg said.