Ruihan Huang | November 20, 2019
Responding To: The Threat of U.S.-China Economic Decoupling
Total Economic Decoupling: An End to the U.S.-China Trade War
After three years of tensions and multiple rounds of reciprocal tariff escalation, the United States and China stand on the precipice of economic decoupling. The trade policies pursued by the Trump administration with respect to China have sidelined the progressive economic policies of prior administrations. The protectionist actions of the Chinese government have, in recent years, forced the United States to view China as less of a partner and more of an economic competitor. The protectionist policies adopted by the Trump administration, however, are not effective for either containing China or preserving U.S. economic hegemony. Rather, they have served to cause panic in the domestic economy of the United States and damage domestic producers far more than their Chinese counterparts. As a result of these policies, U.S. - China economic relations stand on the brink of economic decoupling. Continuing down the Trump administration’s current path of protectionist trade policy would cripple China’s ability to participate in the global financial system, raising the possibility of the total decoupling of the world’s two largest economies.
The decoupling process has come into effect with high U.S. tariffs imposed on Chinese imports, which has slowed trade between the two countries. Through these tariffs, the Trump administration aims to contain and weaken China’s economic growth. Current U.S. economic policies are only furthering the trade imbalance with China and deepening the U.S. trade deficit. For instance, in 2018, “the U.S. imposed 25% tariffs targeted at $34 billion worth of Chinese goods. In response, Beijing hit back with higher duties on $34 billion of American products.” In effect, a rise in tariffs have worsened ever since, slowing U.S.-China trade. The Trump administration believes that the United States will be able to reverse China’s economic growth by enforcing policies that will contain China's participation in the global economy. The United States has intensified the trade war for the fear of being surpassed by China, which has proven itself to expand its economy at a rapid pace. However, Trump’s economic policies to decouple from China have proven ineffective because the United States is limiting their own participation in a market that contributes to U.S. economic prosperity. The current administration is willing to undergo decoupling to limit China’s economic growth at the expense of crippling American investment in the Chinese market.
Currently, the effects of decoupling are only beginning to emerge. However, if the trade war between the United States and China further intensifies, its effects could potentially destabilize each country’s domestic economy. The United States and China have become greatly economically interdependent as each relies on the other for various product imports from production to agricultural goods. If U.S. businesses seek alternative trading partners to China, the United States will lose significant presence in a highly profitable market. Given that China has historically been the United States’ largest trading partner, increased decoupling from China will adversely affect U.S. businesses. In continuing to pursue Trump’s war on trade, the United States stands to lose China as a valuable trade asset. Since China and the United States’ economies have become so intertwined, both countries will experience negative drawbacks because of the trade war. For example, the United States will not be able to find a replacement that will equate to China’s convenience as a trade partner. While China has its own independent projects to increase its domestic economy, if severe decoupling furthers, their developments are not sufficient enough to sustain its current growth rate. At the same time, the trade wars between the United States and China are adversely affecting consumers and producers in the United States. The trade wars have yet to escalate to total economic decoupling but will soon spiral into effect if protectionist policies continue to damage trade relations.
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