In remarks delivered at the Bloomberg New Economy Forum in Singapore, Paulson painted a bleak picture of the future between Washington and Beijing should the impasse continue.
“Big parts of the global economy will ultimately be closed off to the free flow of investment and trade,” he warned.
“And that is why I now see the prospect of an economic Iron Curtain – one that throws up new walls on each side and unmakes the global economy, as we have known it.”
His message comes as US President Donald Trump and Chinese President Xi Jinping are expected to meet at the upcoming G-20 summit in Argentina, although analysts believe it is unlikely the two leaders will reach a trade agreement at the meeting.
The US and China have been involved in an increasingly bitter trade battle that has seen both countries impose tariffs on billions of dollars on each other’s imports.
US officials accuse China of stealing American technology and profiting from unfair trade deals, resulting in the loss of millions of American manufacturing jobs.
Many observers say the US tariffs imposed on Chinese-made products are more than just trade friction between the two countries and are a disguise for America to maintain its economic and high-tech supremacy.
“Today, the region must look wearily at the prospect that what until now has been a healthy strategic competition, could tip into a full-blown cold war,” Paulson said.
The growing tensions between the two countries over a range of issues “have fueled a new consensus in Washington that China is not just a strategic competitor, but very possibly our major long-term adversary,” Paulson added.
The US trade deficit with China rose to a record high of $40.2 billion in September, despite Trump’s tariffs and protectionist trade policies.
US officials say Chinese plans for state-led development in industries like robotics and other technologies have led to a massive trade surplus with the US and might erode US economic and technological leadership.
US Vice President Mike Pence recently gave a blistering speech on US-China relations, saying “the United States has adopted a new approach to China.”
The former commander of the US Army in Europe, retired Lieutenant General Ben Hodges, warned last month that it’s very likely the United States and China will be engaged in a military conflict in 15 years.