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Russian President Vladimir Putin attends a meeting with Chinese President Xi Jinping in Beijing on Feb. 4.SPUTNIK/Reuters

U.S. President Joe Biden has left a threat of global economic war hanging out there with his warning that China would face consequences if it aided Russia in its invasion of Ukraine. But even if that devastating economic clash is averted, the stage has been set for an economic Cold War.

The sanctions imposed against Russia mark the first time economic weapons have been wielded so extensively against such a large adversary.

The freezing of oligarchs’ assets, cutting Russian firms off from the SWIFT payment system, imposing tariffs on many Russian goods – all are being used, quite rightly, to punish Vladimir Putin in lieu of a direct military confrontation with a nuclear power.

They have been imposed in lockstep by countries around the world, notably the massive economies of the United States and the European Union – who remain willing to threaten more.

In others words, economic warfare has been embraced as a viable method of dealing with a geopolitical conflict. That will have an impact.

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Even if the direct economic warfare isn’t extended to China and becomes global, the world’s largest economies – China, the U.S., the EU – will surely conclude that they must insulate themselves against economic warfare in the future.

In Beijing and Washington, we can expect an acceleration of efforts to “decouple” their economies from each other. That might cleave the global economy into blocs, and slow trade. It will encourage an economic Cold War.

The effects of a direct economic clash between China and the U.S. are so potentially ruinous that the smart bet is that Chinese President Xi Jinping and Mr. Biden will avoid it.

Sanctions against Russia have led to further rising oil prices and concern for Europe’s energy security. But Canadian business, for example, has seen it mainly as an opportunity to promote Canadian oil and gas as a secure supply for the U.S. and Europe.

“China is a whole different ball game,” said Patrick Leblond, the CN-Paul M. Tellier Chair On Business and Public Policy at the University of Ottawa. “Economically it would be a disaster for China if Chinese firms could not export goods to the rest of the world. But it would also be a disaster for the rest of the world.”

There would be supply chain bottlenecks beyond those seen during the COVID-19 pandemic, spiking inflation even higher. Slowing global trade could lead to global recession. “The stock market would crash,” Mr. Leblond said. “You could see this nightmare scenario.”

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Because there is so much at stake, Mr. Leblond doesn’t think it will happen. If China did help Russia, it would probably be limited; the U.S. would probably respond with targeted sanctions, perhaps cutting off access to advanced computer chips and high-tech goods, he thinks.

That is akin to the Cold War nuclear logic known by the acronym MAD: mutually assured destruction. No one can reasonably start such a conflict. But there are still risks.

Mark Manger, professor of political economy at the Munk School of Global Affairs and Public Policy in Toronto, also thinks the interdependence of the U.S., European and Chinese economies will lead all to avoid a major clash. But things can go awry. Limited Chinese aid to Russia might lead the U.S. to impose targeted sanctions, but an affronted China might retaliate. “Things can very quickly spiral out of control.”

Even if none of that happens, the threat of economic warfare is now more palpable.

China will want to shield itself. The U.S. and possibly Europe will want to ensure they are not so dependent on China that they cannot use economic measures. They will look to accelerate decoupling.

Mr. Biden, like predecessor Donald Trump, has advocated decoupling, notably reducing reliance on Chinese supply chains and keeping Chinese firms out of tech infrastructure such as 5G networks. Beijing has called for securing its own supplies, in tech, energy and even food. Earlier this month, Mr. Xi called for increasing agricultural output to ensure “Chinese bowls are mainly filled with Chinese food.”

Those trends will probably be redoubled now. Other countries will feel the effects. Canada will need a risk assessment of its own vulnerabilities. It also needs economic allies. It is likely to affect business. Canadian firms selling, for example, artificial intelligence technology, might not have longer-terms prospects in the Chinese market.

In the Ukraine war, those economic measures have been an important tactic to punish Mr. Putin. But now every power has to expect they could be used again.

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