Ruihan Huang | November 20, 2019
Responding To: The Threat of U.S.-China Economic Decoupling
Decoupling—A Pursuit of Economic Protectionism or National Pride?
The United States is China’s largest trading partner, and China likewise is one of the top trading partners for the United States. With hundreds of billions of dollars circulating between the two countries, how is it possible to suggest economic decoupling is a viable option for the world’s current superpowers?
The term “superpowers” calls to mind Cold War policies of containment and isolationism, but it is important to remember the current situation between the United States and China is fundamentally different than that of the United States and the USSR during that era. The United States and China are economically and socially deeply intertwined. One example of this are the mid-western soybean farmers whose number one export destination is China—over a nine-month period from 2018-2019 they witnessed a 70% decline in soybean sales as well as the threat and reality of bankruptcy. Another example is the Chinese dependency on the value of its American treasury holdings—although China may threaten the United States with selling off the $1.2 trillion it has invested in U.S. treasuries, this could create a market scare that would decrease the very value of these holdings. Furthermore, there are social pressures in China alleviated by positive U.S.-China diplomacy which are of economic benefit to the United States—there were over 360,000 Chinese students who studied in the United States in the 2017-2018 academic year, which took pressure off the highly competitive and exclusive university entrance system in China, as well as heavily profited American universities since these students by and large pay full-price tuition.
If decoupling were to happen, soybean farmers would lose their primary export destination and the associated profits, the value of China’s holdings would plummet as they try to sell them off, and American universities would see declining numbers of international Chinese students as diplomatic ties wane alongside economic ties. U.S. universities are already beginning to report declining numbers of new Chinese international students, which will create pressure on the Chinese higher education system. The United States and China are already intertwined economically and socially more than the United States and the USSR ever were, so creating a new world system that divides them would not be an easy or self-evident solution.
The most vital question to ask is—what is the true purpose of decoupling? Is the intended goal truly for the United States and China to protect their respective economies? The underlying issue may not be the economy, but rather national pride. President Donald Trump incited the trade war due to the U.S. trade deficit with China, but an important question to ask is—does this deficit matter? The United States has the largest GDP in the world. Does it matter that it imports more from China than it exports?
What may matter more to the United States is its long-term ideological grip on American exceptionalism. The United States in recent history has recognized itself as “the best”, and it is difficult for it (its government leaders, even its citizens) to shake the need for personal and international recognition of this fact. China’s growing economy threatens the American self-perception of superiority more than it may threaten its actual economic integrity.
This is not to exempt China from accusations of promoting its own rhetoric of national greatness. In historical terms China is still only recently emerging from its hundred years of national humiliation, where it was carved apart and exploited by western powers and Japan. China wants to prove its power to itself and to those who once oppressed it, but U.S. economic pressures by way of the recent trade war are all too reminiscent of an unfavorable power dynamic China is still working to overcome.
Decoupling is really not necessary, nor is it beneficial. The United States and China both have much to gain from trading with each other. What is necessary is a reevaluation of national priorities, and for the United States and China to both humble themselves so they don’t economically destroy themselves over rhetoric and pride. The conflict between the United States and China is not as ideological as that during the Cold War era between the democratic/capitalist United States and the communist/socialist USSR, but the need each country feels to “prove” itself on an international scale is indeed reminiscent of the old divisive international “superpower” system.
The United States and China are too intertwined to economically decouple from each other. What each country should do instead is decouple its sense of national pride from its economic interests.
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