This is what decoupling between the United States and China looks like
This is what decoupling between the United States and China looks like

This is what decoupling between the United States and China looks like

Decoupling is the buzzword in US-China relations. Harvard Business Review carries a feature story, “The strategic challenges of decoupling from China“A leading think tank, the Center for Strategic and International Studies, produces a paper,”A targeted approach to decoupling between the United States and China“The U.S. Chamber of Commerce weighs in with a 92-page paper,”Understanding decoupling between the United States and China. “

This feeling should not come as a surprise, nor is the concern about US-China relations unjustified. Geopolitical issues have been added to the long-standing trade issues to create further uncertainty in the relationship. Human rights issues have also been added to the mix, as well as considerations of supply chain disruptions, sometimes Covid-related. Add to that a more robust nationalism in China’s economic commitment, such as requiring Chinese companies to delist from overseas stock exchanges. Companies want a predictable, controversial operating environment, so all of these issues contribute to a relative decline in appetite for China among U.S. companies.

But is this relative decline in a China orientation the same as decoupling? A relative decrease does not necessarily mean a deterioration in absolute numbers. But “decoupling” suggests a conscious desire to cease China’s activities, even when those activities are beneficial.

First half of the story

So is “decoupling” a feeling, an opportunity or a reality in business relations between the United States and China? Day-to-day business activity is not always easy to measure, but there is at least one data set – trading data – that captures the general trend. Let’s take a look at the year-to-date (until October) figures in trade between the United States and China:

A few caveats: These figures do not include the service sector, nor do they include Hong Kong activity, but the point is still clear: US-China trade is rising nicely, even with all the problems in the relationship. But there is more to the story.

Second half of the story

In absolute numbers, trade between the United States and China continues to grow. But let’s look at US trade relations with some other Asia-Pacific trading partners:

Growth in US exports to India and Indonesia exceeds growth in US exports to China, but US exports to Vietnam are lagging behind this growth. The size of imports is more interesting, as trade growth with all three countries surpasses China’s trade growth. Several facts stem from this data:

  • As all three of these trading partners benefit from greater growth in exports to the US than growth in exports from China, we can conclude that China has become relatively less important to the US supply chain, at least among these countries.
  • Nevertheless, imports from China continue to grow, so in absolute terms, China continues to grow in importance for the US supply chain.
  • Although the growth in imports from India, Vietnam and Indonesia is impressive, it is less than half of US imports from China, even when all three countries’ exports to the US are combined.

Conclusion: A restructuring is underway and the short-term trend points towards a greater emphasis on suppliers other than China. But it is a shift in slow motion and no one can predict whether this will be a long-term trend or whether it is a short-term adjustment that simply reflects the growth of the economies of India, Vietnam and Indonesia.

But the salient fact is that China will continue to be part of the US supply chain for some time to come, a fact reinforced by the Trump-Biden administration’s decision not to pursue trade agreements in the Asia region through the Trans-Pacific Partnership. .

There is no decoupling going on, but there is – at least in the short term – a rebalancing.

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