Into the Unknown: the Present and Future of U.S.-China Decoupling
Cindy Wang | August 25, 2020
Responding To: Is U.S.-China Decoupling Really Feasible?
The June event centering prominent economists and business leaders highlighted the possibility of decoupling the American and Chinese economies. Once-stable supply chains look increasingly precarious. Chinese FDI to the United States has dropped dramatically in the past four years. American companies are beginning to look into relocating to Southeast Asia and other regions to avoid getting caught in the crossfires of a trade war between the two superpowers. At the center of this instability is not only economics, but politics. Tensions between leaders in Washington and Beijing are at an all-time high and the rhetoric between the two countries is more vitriolic than any period in U.S.-China relations since the death of Mao.
Although the event featured experts in business and economics, the future of the U.S.-China relations will ultimately fall to politicians and bureaucrats. Their decisions will directly and indirectly affect the economic prospects for millions of people around the world, including American and Chinese citizens. According to Jörg Wuttke’s remarks, China represents an estimated 30% of the world’s growth potential over the next decade. Missing out on China’s future growth would undoubtedly jeopardize the economic prospects for thousands, if not millions of Americans. Today, the U.S.-China trade relationship supports 2.6 million jobs for Americans. As for the Chinese side, American companies bring in much-needed investment, especially for local governments. American demand further spurs economic growth in China. Partially due to depressed demand in the United States and elsewhere as a result of the COVID-19 epidemic, China’s economy contracted in the first three months of the year for the first time since 1976.
So China and the United States are interdependent on each other. But this interdependence should not be looked at as necessarily detrimental to either country. In fact, the interdependence on one another provides both countries with tools to influence policy decisions and deter unwanted actions. In the next few decades, American leaders will need to learn how to manage an aggressive Chinese state that is increasingly willing to utilize its growing power to assert itself in the region and around the world. What tools does the United States government have in influencing Chinese policy? Short of military action, the threat of economic punishment is one of the only punitive tools available to American policymakers to curb unwanted Chinese action. And while the threat of decoupling is a powerful motivating force for a Chinese Communist Party that justifies its rule with sustained economic growth for its citizens, total or even partial decoupling now would limit U.S. influence in China and in the region.
The Trump administration rightly recognizes that China has used existing international systems for its own economic advantage. But the administration’s strategy of vilification and dealing with China bilaterally is counterproductive. The United States’ greatest strength is its ability to create coalitions and draw on its allies to secure policy objectives. As China’s economic, military, and diplomatic power grows, American leaders must develop strategies to deter assertions of Chinese power that threaten to destabilize American interests in the region.
What strategies should American leaders develop? Unilateral embargoes of Chinese goods and calling COVID-19 the “China Virus” is not the answer. Instead, American leaders should look to build coalitions that can be tapped into in order to counter China economically, including reconstituting the Trans-Pacific Partnership, which would allow the United States to force states, including China, to choose between lucrative markets while following TPP trade rules or missing out on economic opportunities. Furthermore, despite its failings, American leaders should still utilize the WTO when adjudicating trade disputes before taking unilateral punitive measures against China. Undermining the only rules-based international forum in place to settle trade disputes is counterproductive to the long-term objective of ensuring the continuation of an international market system that promotes free trade. Finally, American negotiators should refrain from agreeing to trade deals that compel China to buy a certain amount of American exports, as seen in the trade deal signed earlier this year. As reported by Joshua Meltzer and Neena Shenai of the Brookings Institute, these types of deals give China leverage over the United States as Chinese leaders are able to shut off these purchases at any time.
The United States does not need to decouple in order to change China’s behavior. In fact, decoupling should be considered a last resort and will ultimately undermine the United States’ ability to influence China’s actions. Instead of trying to deal with China on a bilateral basis, the United States should rely more on its allies and ability to build coalitions without undermining the rules-based system that has encouraged sustained international growth over the past half-century. American leaders should reserve the threat of decoupling for Chinese actions in the region that most threaten American interests. Although the Trump administration has identified important imbalances in the U.S.-China relationship, a trade war and scapegoating will not result in a long-term solution that ameliorates these imbalances.
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