Victoria Reiter | November 20, 2019
Responding To: The Threat of U.S.-China Economic Decoupling
Current Conflicts Open Up New Prospects for U.S.-China Economic Relations
In recent years, with the aggravation of the U.S.-China trade conflict, the voices about the inevitable consequence of economic decoupling between China and the United States are becoming louder and louder. However, in October 24, 2019, the Vice President of the United States Mike Pence denied that the United States was seeking to “decouple” from China, despite “the many challenges we face in the U.S.-China relationship.” on his speech at the Woodrow Wilson International Center. Just a month earlier, China’s Foreign Ministry also declared on September 30, 2019 that “any decoupling of China and the United States would harm both sides and cause instability in international markets.”
From my perspective, as the two largest economies in the world, it seems impossible for the United States and China not to correlate with each other. One of the effective methods to analyze whether the United States and China will go through economic decoupling is to look at whether these two countries still have interests with each other in economic development. If they have common interests, decoupling from each other could not be the optimum for them.
For the United States, giving up the Chinese market is not a wise way. Since China is the most populous country in the world and the size of the Chinese middle class is growing continuously, lots of U.S. firms such as Apple, Nike, Starbucks and Boeing make a large part of their profits from the Chinese market. According to an annual member survey by the U.S.-China Business Council (USBC), completed in June by 100 U.S. companies, about half of the USBC membership, “97 percent of the companies responded that their China operations are profitable.” Besides, by setting up factories in China or entrusting Chinese enterprises to carry out assembly production and other productive activities, lots of U.S. companies save a huge amount of expenses on labor and materials and as a result American people can benefit from cheap products with good qualities. What’s more, the United States should also cooperate with China to solve the North Korea nuclear weapon threat completely.
For China, the United States plays an important role in China’s economic development. The United States is China's second largest trading partner and its largest export market. The United States has also built up a lot of manufacturing, finance, and technology companies with millions of Chinese workers. What’s more, huge amounts of investments and technological support from the United States continue to contribute to China’s marvelous economic development.
From above, it would be irrational for the United States and China to decouple with each other because they still have multiple economic interests. In fact, even though with the aggravation of a U.S.-China trade conflict in recent years, the trade between the two countries shows no sign of decoupling. Conversely, it seems that economic and trade exchanges between China and the United States have become more frequent. According to the data released by the Office of the United States Trade Representative, “U.S. foreign direct investment (FDI) in China (stock) was $107.6 billion in 2017, a 10.6% increase from 2016. U.S. direct investment in China is led by manufacturing, wholesale trade, and finance and insurance. U.S. goods exports to China in 2018 were $120.3 billion, down 7.4% ($9.6 billion) from 2017 but up 72.6% from 2008 and up 527% from 2001 (pre-WTO accession). U.S. exports to China account for 7.2% of overall U.S. exports in 2018. U.S. exports of services to China were an estimated $58.9 billion in 2018, 2.2% ($1.3 billion) more than 2017, and 272% greater than 2008 levels. It was up roughly 997% from 2001 (pre-WTO accession).” We can also conclude the same results from the data released by the Ministry of Commerce of the People’s Republic of China: “in 2018, the bilateral trade in goods between China and the United States totaled US$633.52 billion, an increase of 8.5% than previous year. Among them, China's exports to the United States were 478.42 billion U.S. dollars, an increase of 11.3% than previous year.”
Therefore, from my viewpoint, the United States and China will not decouple from each other, but there is no doubt that nowadays unprecedented misunderstandings and obstacles challenge the U.S.-China relationship. However, from a different perspective, current conflicts between the United States and China in trade also mean that these two countries still hope to continue economic and trade exchanges but in a fairer and more constructive way. They need to reach a win-win agreement with strict supervision to achieve deeper cooperation and develop a stronger relationship with mutual trust in the not so distant future.
As matters stand, the main conflicts between China and the United States are the protection of intellectual property rights, the huge trade deficit and law enforcement. In fact, as China continues the process towards high-quality development, Chinese officials also realize the importance of protecting intellectual property rights and opening up the Chinese market for more foreign ownership so future economic development can occur. At the Second Belt and Road Forum for International Cooperation, President Xi Jinping promised that “China will strive to create a business environment that respects intellectual value, to comprehensively improve the legal system for intellectual property protection, to vigorously enhance law enforcement, to strengthen the protection of the legitimate rights and interests of foreign intellectual property owners, to put an end to forced technology transfer, to improve the protection of trade secrets, and to crack down on intellectual property infringement in accordance with the law.” What’s more, the China Securities Regulatory Commission on October 2019 released a time frame for removing limits to foreign stakes in the future. China’s new foreign investment law will take effect on January 1, 2020.
All in all, as for the current conflicts, it is unlikely that the United States and China will go through economic decoupling, and current conflicts are not necessarily bad things for U.S.-China relations. Conversely, since both countries have multiple growing economic interests and the original equilibrium of interests is broken, current conflicts provide the United States and China with an opportunity to negotiate with each other to achieve a new equilibrium. Hopefully further cooperation with mutual trust will motivate China to speed up its economic and legal reforms with a strong desire for achieving a high-quality development under the premise that China's sovereignty is not challenged by other countries.
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