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November 18, 2019

Responding To: The Threat of U.S.-China Economic Decoupling

A World Divided: The Threat of U.S.-China Decoupling

Cathy Sun

For spectators, the ongoing trade war between the United States and China may not be an urgent cause for concern on its own, but posed in a larger, longer-term picture for the international balance of power, it has far-reaching implications. The trade war is in fact part of a broader battle for global dominance and geopolitical control between two prominent world powers, and its escalation is poised to disrupt long-standing economic and political structures. While framed on purely economic terms, it is clear that its motives are at least partially driven by concerns of national security and political influence.

Thus far, in the lone pretext of this war, the United States and China have levied harshly punitive tariffs on hundreds of billions of dollars worth of each other’s goods, creating turmoil in global financial markets and threatening trade and economic growth. The implication of this disruption is an emergent and distinct possibility of decoupling between two economic powerhouses—carving the world into two rival power structures and systems, with lasting and devastating consequences for international relations and decision-making.

This division is most clearly manifesting itself in the current tech war and battle for digital influence that is playing out on the periphery of the trade war. On this front, Beijing and Washington are racing for the lead in artificial intelligence and 5G innovation, and pushing efforts to curtail each other’s progress—whether by locking competitors out of markets or simply banning them altogether. Public statements and strategic plans announced by both governments have reinforced this zero-sum framing and a sense of urgent antagonism that seems to characterize the broader game of political play.

Under both Donald Trump and Xi Jinping, targeted policies and sharp rhetoric point to the potential realization of the threat of decoupling in the foreseeable future. The Trump administration’s two putative goals appear to be ending the bilateral U.S.-China merchandise trade deficit and preventing further Chinese progress in technological innovation and global market dominance. As part of their execution strategy, the United States is leveraging a myriad of price and non-price mechanisms, ranging from the heavy use of tariffs on Chinese imports to the imposition of visa quotas and revocation of permits for the activities of Chinese entities in the country, furthering strains on economic relations. In retaliation, China has increasingly framed issues of trade tensions and internal turbulence as the antagonistic work of the United States, as it sees no clear end to their differences over economic growth and political influence. On the escalating demonstrations in Hong Kong, spokeswoman for the Ministry of Foreign Affairs Hua Chunying has said that “it is, after all, the work of the United States.” Their strategy of singling out the United States as a bad actor is “part of a bigger playbook to blame the United States for everything,” according to Professor Ho-fung Hung at Johns Hopkins University. In tandem with the breakdown of economic cooperation and trade relations, Chinese state news outlets are increasingly depicting domestic troubles as driven by nefarious agenda of the United States.

Despite what appears to be cause for panic amidst bleak prospects for resolution and recuperation, the fact remains that decoupling is still a fairly distant outcome, as diplomats in both Beijing and Washington are cognizant of its potentially devastating consequences to both states. U.S. deputy assistant secretary of defense Chad Sbragia said at a Chinese military forum that the United States has no plans to sever or severely curb economic ties to China, but rather to “rebalance and right relationships to ensure...equity.” In their long-term framework, the United States is not aiming to “ask any country to choose between Washington and Beijing.” On the other side, spokesman for the Ministry of Foreign Affairs Geng Shuang said recently that “exerting maximum pressure and even seeking the forced decoupling of China-U.S. relations will harm the interests of Chinese and American companies and people, create turmoil in financial markets, and endanger global trade and economic growth…[and] this does not accord with the interests of the international community.”

For now, it seems that the implications of complete decoupling are clearly detrimental to interests on both sides of the world. Among other consequences, technological bifurcation could undermine effective international cooperation on macroeconomic management, jeopardize efforts to optimize mutual benefits from scientific progress, and forestall the implementation of global solutions to pressing threats such as climate change. As long as there is mutual acknowledgement that economic relations are not a zero-sum game, there is hope for a stable, cooperative, and integrated world.

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