This is what the decoupling between the US and China looks like – Community News
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This is what the decoupling between the US and China looks like

Decoupling is the buzzword in US-China relations. Harvard Business Review includes an editorial, “The Strategic Challenges of Decoupling from China.” A leading think tank, the Center for Strategic and International Studies, is producing a paper, “A Targeted Approach to US-China Decoupling.” The US Chamber of Commerce weighs in with a 92-page article, “Understanding US-China Decoupling.”

This sentiment shouldn’t come as a surprise, nor should concerns about US-China relations be unfounded. Geopolitical issues have been added to the long-simmering trade issues to create additional uncertainty in the relationship. Human rights issues are also added to the mix, as are considerations about supply chain disruptions, sometimes Covid-related. Add to this a more robust nationalism in China’s economic engagement, such as requiring Chinese companies to delist from foreign exchanges. Companies want a predictable, controversial work environment, so all of these issues contribute to a relative decline in the appetite for China among US companies.

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

The first half of the story

So is “decoupling” a sentiment, a possibility or a reality in US-China business ties? Day-to-day business activity is not always easy to measure, but there is at least one data set – trading data – that captures the overall trend. Let’s take a look at the year-to-date (to October) figures in US-China commodity trade:

A few caveats: These numbers don’t include the service sector nor activity in Hong Kong, but the point is still clear: US-China trade has grown well, even with all the trouble in the relationship. But there is more to the story.

The second half of the story

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

The growth of US exports to India and Indonesia is exceeding the growth of US exports to China, but US exports to Vietnam are lagging behind that growth. Import size is more interesting, as trade growth with all three countries outpaces Chinese trade growth. Several facts emerge from this data:

  • Since all three of these trading partners have a greater growth in exports to the US than the growth in exports from China, we can conclude that China has become relatively less important to the US supply chain, at least among this set of countries.
  • Still, imports from China continue to grow, so in absolute terms, China continues to become increasingly important to the US supply chain.
  • While import growth from India, Vietnam and Indonesia is impressive, even when all three countries’ exports to the US are added together, less than half of US imports are from China.

Bottom Line: A realignment is underway and the short-term trend is pointing to a greater weight on suppliers other than China. But it’s a slow-motion realignment, and no one can predict whether this will be a long-term trend or whether it’s a short-term adjustment that simply reflects the growth of the economies of India, Vietnam, and Indonesia.

But the most notable fact is that China will remain part of the US supply chain for quite some time to come, a fact reinforced by the Trump-Biden administrations’ decision not to pursue trade deals in the Asia region through the Trans-Asia region. Pacific Partnership.

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