What areas within the increasingly bitter conflict between China and the West are most likely to hit asset owners?

The obvious examples include the US blacklist on investment in selected Chinese equities and tightening controls on investment by Chinese firms into Europe and the US. These, after all, are the current focus of the dispute. 

But such a view, although understandable, fails to grasp the dynamics of international conflict. Disputes over economic matters, although troublesome, are generally amendable to compromise. In contrast, disagreements over what could be called cultural matters are harder to resolve. That is why they have greater potential to escalate conflicts to new levels of intensity.

In relation to mainland China this means interference in matters it regards as central to its national sovereignty. These include criticism of its policy towards Taiwan, Hong Kong and the Uyghur Muslim minority in Xinjiang province. These are the “red lines” it insists the West should not cross.

Yet the Biden administration has committed to an assertive stance on such matters. For example, Antony Blinken, the secretary of state, used his first day in office to reiterate that China had committed genocide against Uyghur Muslims. This is a serious charge. Admittedly in the same speech he said he favoured co-operation with China but that is unlikely to quell China’s anger.

Culture wars pose the greatest dangers

Of course, if the Biden administration truly believes the charge – and under the circumstances it is hard to tell whether it does or if it is a cheap negotiating tactic – there is certainly a moral case for taking strong action. But if the US, and perhaps Europe too, chooses to go down that route they would need to do so with their eyes open. There is no doubt they would face resistance from China. The People’s Republic would use its economic weight and political muscle to resist what it would undoubtedly see as an attack on its national sovereignty.

From a European perspective the conflict over Brexit, although on a smaller scale, should give some taste of the potential bitterness. Because it involved a conflict over radically different conceptions of democracy and sovereignty it generated intense anger on both sides. For that reason it took many years to resolve and the wounds are still not entirely healed.

Anyone thinking about the potentially tragic consequences of conflict between China and the West needs to bear these lessons in mind. It is not just about current disagreements but also trying to avoid escalation to an even more dangerous level.

Daniel Ben-Ami, Deputy Editor