The Economy as Battlefield: The 21st Century Sino-American Cold War
Glenn Chafetz – Director – 2430 Group
The main battle space in the conflict between the People’s Republic of China (PRC) and the United States is not land, sea, air, space, or even cyberspace. It is the American economy. In this Second Cold War, the principal U.S. combatants do not fire weapons, sail ships, or fly aircraft; they run businesses. Although commonly referred to as the “Second Cold War,” it remains putative and is not officially recognized by the U.S. government. This war is asymmetric: the Chinese Communist Party (CCP) centrally directs the entirety of its party-state-economic machinery, including its putatively private companies, against the decentralized, civilian assets of the United States’ commercial sector, critical infrastructure, and civil society. U.S. political leaders struggle to respond effectively because the tactics and “weapons” China employs, most notably cyber intrusions, commercial espionage, and influence operations, are hidden, incremental, and deniable. Moreover, the principal targets of the CCP efforts are private companies and infrastructure networks diffused across the United States, and the government has neither the resources nor authorities to defend so many entities. This means that businesses must defend themselves. However, the U.S. private sector is not remotely up to that task.
China’s Goals And Methods
China outlines its strategy in the current People’s Liberation Army (PLA) doctrine. China envisions winning this war without firing a shot. Victory follows instead from the compromise of U.S. critical infrastructure and erosion of the economic foundations of U.S. power. Beijing’s goal is to render the United States logistically, economically, and politically incapable of challenging China’s freedom of action globally, and most especially in the Western Pacific. Being prudent, China’s leaders plan for the possibility of a hot war on the way to this goal, but they view shooting wars as unpredictable, and thus best avoided. It is far better to reduce the United States’ ability to use, or even seriously threaten, military action. Toward that goal, the CCP applies three broad methods: compromise of U.S. critical infrastructure; reduction of U.S. economic power; and influence over U.S. politics and society.
Compromise of Critical Infrastructure
The first and most dangerous method involves compromising U.S. critical infrastructure: power, energy, transportation, water and telecom networks. One security official at a large technology company told the author that critical infrastructure penetrations constitute “at least one third” of all discovered cyber intrusions. China is the perpetrator of the overwhelming majority of these. Known infrastructure compromises, like the Salt Typhoon attack discovered in 2024, are the tip of the iceberg. The Colonial Pipeline attack of 2021 (though not a PRC intrusion), is a cautionary tale in which the shutdown of one pipeline interrupted gasoline deliveries to the U.S. east coast. Simultaneous shutdowns of multiple pipelines in combination with attacks on electrical grids, rail hubs, ports, and telecoms would do much greater harm. In addition, most infrastructure infiltrations remain undiscovered for months or years, thereby reducing the reliability of critical infrastructure at any given time. U.S. military forces depend on civilian infrastructure, especially rail, shipping and fuel, to get to the fight. Without this logistical support, U.S. forces could not even reach the Western Pacific, let alone fight there effectively. Moreover, the fallout from multiple concurrent interruptions in power, transport, and communication across multiple states would distract political leaders from focusing on a faraway conflict.
Reducing the Economic Bases of American Power
Over the longer term, China seeks technological, economic, and financial superiority through a set of policies that revive and modernize the tactics of the mercantilist age, by putting its competitors out of business. Document 79 of 2022, or “Delete America,” issued by the State-Owned Asset Supervision and Administration Commission, explicitly articulates the goal of removing U.S.-made products and services from China’s supply chain. A broader consequence of this policy would be to replace U.S. market leaders worldwide with Chinese companies. This goal is laid out in “Made in China 2025,” Xi Jinping’s initiative to achieve Chinese global market dominance in high technology industries like aerospace, robotics, and information technology.
The CCP deploys a number of tactics in this effort, including state subsidies, artificially depressed wages, regulatory harassment of U.S. companies, import bans, and strategic monopolies like the one it enjoys in rare earth metals. China’s organized intellectual property (IP) theft is a significant tool, and constitutes an involuntary U.S. research and development subsidy to China. The losses of U.S. market share resulting from China’s policies mean foregone revenue, profit, investment, jobs, and tax base.
Influence Operations
The third of the CCP methods is covert influence. A handful of prosecutions of PRC intelligence agents reveal efforts to penetrate government entities (from local to federal levels) as well as media and civic organizations. The 2024 arrest of Linda Sun, an aide in the New York governor’s office, is an example. Sun was charged with acting as an agent of the PRC. In addition to recruiting agents of influence, the PRC employs a huge machinery for propagating stories of its own benevolence and trying to silence any criticism of China or its companies. Americans use TikTok, RedNote, DeepSeek, Huawei, and thousands of other products and services, often oblivious to the dangers of influence, as well as data harvesting. Clive Hamilton documented how the PRC systematically infiltrated all levels of the Australian government and civil society in his book Silent Invasion. The CCP is applying the same tactics it used in Australia against the United States, including exporting its censorship of any criticism of China.
Why China Is Winning
China’s influence operations constitute one of four reasons PRC covert and clandestine efforts against the United States succeed. The other three are: the real economic benefits Americans derive from interaction with China; the intrinsically hidden nature of intelligence activities; and the fact that the rewards from engagement with China are visible, while the losses are obscured.
First, American organizations continue to invest in Chinese companies, build factories in China, hire PRC citizens, pursue Chinese investment, and engage in academic exchanges with Chinese universities and research institutes. These activities continue because they benefit the American side.
Second, the nature of intelligence and the CCP’s own policies make it difficult to determine which connections are dangerous. For example, Article 7 of China’s 2017 National Intelligence Law requires that all PRC citizens and companies give any requested assistance to China’s intelligence agencies or face sanctions up to and including imprisonment. This mandate makes all PRC citizens and companies potential intelligence agents, an apt demonstration of weaponizing the private sector, but also a conundrum for American businesses, which lack the ability to distinguish friend from foe.
Finally, the benefits of interaction with China are visible, while the risks are obscured and diffused. IP theft exemplifies this phenomenon. Most U.S. firms are unaware of the scale of theft, and thus underestimate its risks. One reason, already noted above, is that IP theft is espionage and thus designed to be undetected. Another is that many firms do not even account for the value of internally generated IP, and so cannot calculate losses stemming from stolen IP. Moreover, many of the firms that discover such losses never report them for fear of negative reactions from investors or regulators.
Many businesses that do recognize the general existence of a threat from China still fail to respond because they suffer from wishful thinking and conclude that infrastructure infiltration, cyber attacks, and commercial espionage happen only to other bigger or more prominent companies. Furthermore, those firms that recognize that they are targets either do not know how to respond, or are willing to absorb the cost of IP theft in order to maintain access to the Chinese market.
One obvious response is to disengage from China. However, reducing or ending decades of economic dependence on the Chinese market is a long, complicated, and costly process. For many companies, decoupling from China is not practical, at least not in the short-term. Apple is a prime example as it remains deeply tied to China through its manufacturing supply chains and consumer market. A second reason companies do not address risk is that most business leaders lack any background in geopolitics and intelligence. Their focus is on making their products and delivering their services, not defending against state-directed commercial espionage.
Conclusion
The U.S. private sector needs to understand that the threat it faces from the PRC will not abate. It cannot be mitigated by any kind of diplomatic agreement, policy, or deal. The conflict is existential and will end only with the PRC global hegemony or CCP collapse. In this way, the U.S.-PRC conflict resembles the firstCold War. This putative Second Cold War, however, is far more dangerous because China is now so deeply woven into the U.S. supply chain, and has economic, financial, and technological resources that the Soviet Union never imagined.
U.S. businesses must accept that they play the central role in this conflict whether their operations directly touch China or not. The government’s role in this conflict is limited by the decentralized nature of the threat and the targets. The FBI can continue to play its lead role in traditional counterespionage, but 10,100 FBI Special Agents cannot protect more than a million businesses along with tens of millions of vulnerable points of a continental critical infrastructure. Therefore, the response must be decentralized. U.S. technology and infrastructure companies must defend themselves. This involves integrating basic counterintelligence (CI) into their business operations.
The private sector’s record on CI and security to this point does not provide reason for optimism. Some sectors take threats seriously. Utilities, which are prime targets, take cybersecurity quite seriously and spend about six percent of their IT budgets on security, but this means likely under one percent of all spending. Moreover, investment in security is skewed to cyber and to larger companies. Smaller companies devote less to security, and most companies spend far less on other facets of security and CI, like ensuring their supply chain integrity and defending against human intelligence.
This must change. Most CI measures are simple, comparatively inexpensive and cost-effective, especially when measured against potential losses. U.S. businesses that fail to integrate security and CI into their operations will soon find that they have fewer operations to protect—to the detriment not just of those businesses, but to the whole U.S. economy and national defense base that depend on them.
Glenn Chafetz retired from the CIA in 2019. He also served at the State Department and has taught and written widely on international politics. He currently directs 2430 Group, an independent, nonprofit research institution that examines state sponsored threats to the U.S. private sector.