Can the United States Really Decouple From China? – Community News
Us China

Can the United States Really Decouple From China?

Despite their differences, US President Joe Biden has continued his predecessor’s hard line toward Beijing. Biden, like former US President Donald Trump, believes the United States should “uncouple” from China by reducing US reliance on Chinese products and supply chains — for both economic and national security reasons. Biden is not alone in this belief. Much to the disappointment of those in favor of increased trade and investment between the US and China, measures to distance the two economies are gaining support from both Democrats and Republicans.

But despite the support of two parties, economic decoupling is quite a challenge. If the Biden administration is to succeed, the United States will not only have to reorganize large parts of its own globalized economy, but also ensure the participation of other countries that are major trading partners of – and investors in – China. Both goals will be harder to achieve than many in Washington expect.

So far, Biden has built on the Trump administration’s decoupling efforts — albeit with softer rhetoric. Last June, the White House outlined a comprehensive plan to ramp up production domestically to reduce Washington’s reliance on fragile global supply chains, especially those originating from China. It focused mainly on critical industries such as semiconductors, where the United States’ market share has fallen sharply in recent decades, and rare earth minerals, where it depends on China for about 80 percent of its needs. Meanwhile, Biden has maintained the tariff hikes Trump has imposed on imports from China and has taken steps to ban investment by US companies in 59 Chinese companies associated with the Chinese military or producing surveillance equipment. Some have already been blacklisted by Trump, including telecommunications giant Huawei.

Biden and Congressional Democrats are also pushing for major investment to reduce the US’s reliance on crucial imports from China. That’s the goal of Chuck Schumer’s Innovation and Competition Act, a Senate majority leader, a $250 billion mega-plan to fund scientific research and expand production of advanced technologies. Schumer’s bill has already passed in the Senate — with the support of 19 Republicans — where there is a bipartisan agreement that creating new technology hubs in the United States’ Rust Belt is essential and urgent.

Meanwhile, critics of economic decoupling, most notably the US Chamber of Commerce, warn that it will disrupt existing supply chains, exacerbate production delays and force businesses and consumers to pay more, not least because of shifting production. cannot happen overnight. As a result, Biden faces urgent calls from US companies to end Trump-era tariffs. In addition, China has already threatened to cut imports from the United States if Schumer’s bill becomes law, potentially harming American farmers and energy producers.

The decoupling efforts have already hit US consumers. Since Trump acted unilaterally, the effects of his decoupling strategies were felt only by the US economy. By raising tariffs on imports from China, Trump increased the cost of Chinese-made goods to American consumers — by a whopping $80 billion in 2018 alone. In addition, the number of jobs in the US did not match Trump’s typically extravagant promises. Rather, there was a net loss of somewhere between 250,000 and 300,000 jobs. The trade deficit with China did decline, but only modestly, from $346.8 billion in 2016 to $344.3 billion in 2019 — the last year before data is skewed by the Covid-19 pandemic.

For the decoupling strategy to have any chance of success, Biden must abandon his unilateral policies and mobilize collective action with countries that have significant trade with — and investment in — China.

The Biden administration has taken some steps in this direction, including the agreement at last June’s G-7 summit on the Build Back Better World (B3W) partnership, a project seen as an effort to build China’s Belt and Road counter-initiative. B3W aims to strengthen cooperation between the G-7 countries while making substantial investments in low- and middle-income countries in infrastructure, financial coordination and economic development. The fewer countries China pulls into its orbit, the easier it will be for the United States to restore its economic ties, but that will require a more strategic and substantial effort than what the White House has revealed so far.

More recently, Biden struck a deal to abolish Trump-era tariffs on European steel, which has reduced European exports to the United States by 53 percent since 2018. exports, the prospects for a united front against China may improve. The United States and the European Union are already making renewed efforts to curb intellectual property theft — for which China is widely blamed — in areas such as wind turbine software and technology related to telecommunications and automated vehicles.

But that doesn’t mean the EU is rushing to decouple from China itself. European trade experts predict this would stunt growth and reduce incomes across the continent. EU multinationals operating in China agree. A recent survey by the European Union Chamber of Commerce in China found that European companies continue to appreciate China’s lucrative market and report no new plans to relocate investment elsewhere. Former German Chancellor Angela Merkel recently reiterated this belief by stating that “total decoupling … would be harmful to us”. The potential drawbacks are indeed huge for the EU: trade with China totaled $745 billion in 2020, making China, not the United States, the EU’s largest trading partner for the first time.

Some analysts have pointed to the EU’s Global Gateway project — $340 billion in planned investments by 2027 targeting international infrastructure, digital communications and green energy — as a bold move to combat China’s economic power. However, The Economist derided it in a column aptly titled “Why bullshit rules in Brussels” as “mainly a mixture of existing pledges, loan guarantees and heroic assumptions…rather than actual new releases.” They may be right, especially since $340 billion is small compared to the $1 trillion China has pledged to foreign infrastructure projects over the same period.

For Biden’s decoupling strategy to be effective, Japan must also sign up. But Tokyo also has a lot to lose. The Chinese and Japanese economies are now deeply intertwined. Four decades ago, Japan’s trade with China totaled $1 billion; in 2019 it had risen to $304 billion. Japan’s foreign direct investment in China has also exploded, reaching $11.3 billion in 2020, 27 percent of Japan’s total investment in Asia.

Still, Tokyo is trying to change course by allocating $2.2 billion in 2020 to entice Japanese companies with operations in China to return to Japan or Southeast Asian countries to diversify Japanese supply chains. So far, 87 Japanese companies have received such support. This reflects a larger trend: at the peak of 2012, 14,394 Japanese companies were active in China; in 2019 more than 700 had left.

Still, China remains a major investment place for Japanese companies, especially those related to auto production, which are estimated to account for half of Japan’s investment in China. Despite the danger of technology transfer and setting up extensive supply chains in China, creating their own competition, Japanese companies continue to consider that an acceptable risk to access China’s huge market. Indeed, in 2020, China was ranked first among the places where Japanese companies planned to increase their activities and exports. This suggests that Tokyo is highly aware of the economic costs of decoupling.

South Korea’s position is even more precarious given its extensive economic ties with China. Although South Korea’s exports to the West have grown strongly in recent years, China remains the most important export market, with sales totaling $133 billion in 2020 — about 27 percent of total exports — versus $74.4 billion to the United States. United States and $25.1 billion to Japan. According to the Korea Institute for Industrial Economics and Trade, a fifth of South Korea’s imports come from China, a larger share than from Japan or the United States. Those imports are vulnerable to supply chain disruptions, which can cause, among other things, costly production delays and shortages for consumers.

Moreover, the creation of the Regional Comprehensive Economic Partnership in Asia, which includes 15 countries in Asia and the Pacific – including China – and accounts for about 30 percent of global GDP, shows that decoupling from China is hardly the prevailing trend.

Economic constraints aren’t the only reasons Asian countries are wary of decoupling from China. Think South Korea. With the military balance of power in East Asia shifting between China and the United States in Beijing’s favor, Seoul will be wary of taking drastic measures that could infuriate Beijing. Anti-Chinese sentiment has increased in South Korea, especially among young people: a recent poll by the Chicago Council on Global Affairs found that more than half of respondents view China as a military threat. But as the strategic environment changes in its neighborhood, Seoul will be aware of the risks associated with following a decoupling script written in Washington and may prefer to avoid an economic offensive against China.

Given the difficulties in organizing a cohesive US-led coalition committed to economic decoupling, the strategy is unlikely to change China’s behavior. In addition, Beijing has moved to reduce its own reliance on export-led growth in favor of increased consumer demand at home. Even if the disconnection were to progress, the Chinese government would remain committed to its core priorities, such as reunification with Taiwan or crushing rebellions against its authoritarian political order.

Decoupling — even if it has little direct impact on China — still has an advantage. Reducing the United States’ reliance on fragile supply chains can protect the economy from future disruptions like those of the past two years. And investing in domestic capacity is a long time coming. If all this can be done while strengthening partnerships with like-minded allies, so much the better.

Jeffrey Kuciki is an associate professor in the School of Government and Public Policy and the James E. Rogers College of Law (courtesy) at the University of Arizona.

Rajan Menon is the Anne and Bernard Spitzer Chair in International Relations at the Colin Powell School of the City College of New York, a senior researcher at the Arnold A. Saltzman Institute of War and Peace Studies at Columbia University, and director of the major strategy program at Defense Priorities.

Disclaimer: This article first appeared on Foreign Policy and is published by a special syndication arrangement