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November 19, 2019

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

U.S.-China Decoupling: A Zero-Sum Game?

Cole McFaul

Today, the United States and China undoubtedly view each other through increasingly adversarial lenses. More and more, Washington policymakers in and out of government label the growth of Chinese economic and military power as a direct challenge to American hegemony in the world. While decoupling seems like a distant possibility right now, the United States and China could, through posturing and because of domestic nationalistic pressures, stumble into a scenario in which the economies of the countries are decoupled.

Through the Belt and Road Initiative, its activities in the South China Sea, and generally increasing engagements with the international community, China has become one of the most consequential and powerful states in the international community. China has undoubtedly benefited tremendously in the past and continues to benefit today from the liberal world order implemented and enforced by the United States and the West. Since Deng Xiaoping’s reform and opening policy, Chinese SOEs and smaller-scale manufacturing have utilized the rules-based order, taking advantage of low tariffs in other markets to transform their economy into an industrialized, modern, export-based economy. China’s entry into the international liberal order played no small part in helping China lift 850 million people out of extreme poverty since 1980.

Some in Washington fear that China’s rise will threaten the global world order and undermine the international institutions that have permitted the past 80 years of relative peace. So far, however, this claim lacks substantial evidence. China has very little incentive to undermine the institutions that make up the liberal world order as the current world order is advantageous for China. As we have seen recently, as the United States has retreated from the international community during the Trump administration China has stepped in as a global leader, reinforcing those liberal institutions that so many in Washington are so afraid the Chinese want to undermine. Especially in the fight against climate change, the Chinese have taken the lead where the United States has taken steps back.

The real threat to a future decoupling between the two countries lies not in the two countries’ actual actions, but the perceptions behind future intent. While decoupling remains seemingly unthinkable as the two economies are currently so closely tied to one another, both countries increasingly perceive the other to be purposely undermining the other. The United States has labeled China as a revisionist power and views much of China’s international activities as directly opposed to United States interests. China, on the other hand, believes that the United States is maintaining their hegemonic power by trying to undermine China’s growth. Both countries’ governments seem to be adopting a much more realist outlook towards one another, viewing gains by the other side as losses for their own country. This zero-sum outlook towards the U.S.-China relationship is dangerous in that it encourages each side to view interaction as a competition in which only one country can win. Only by reframing interactions between the United States and China as cooperative dialogues in which both sides can exit winners both in terms of actual gains as well as domestic political gains will the relationship improve and the risk of decoupling decline. As of now, the current framing of a zero-sum game, whether justified or not, runs the risk of escalating tensions enough to where total decoupling becomes a viable option for one or both countries.

To further complicate matters, both powers face strong domestic pressure to not cooperate. Nationalism in both countries is on the rise, and both Americans and the Chinese generally support hard-line approaches towards the other country. In the American political arena, few politicians on either side of the aisle have adopted strong public stances for reconciliation of the U.S.-China relationship and few have called for a softer approach to China. In China, the CCP feels similar domestic pressures to adopt a hard-line stance towards the United States.

It is not unfathomable to see the United States and China stumble into a situation in which the two countries decouple economically. Already, the Trump administration has made tariffs, a tool used in economic decoupling, the central instrument through which to conduct policy towards China. While the United States and China are still very far from total economic fragmentation and a Cold War-like relationship, the possibility of the breaking of the current economic ties remains real and is increasing in likelihood. This would be a disaster for both the United States and China, as well as the world, as the close economic ties enjoyed by the two countries today makes the cost of military aggression much higher for both parties. It is strongly in the world’s security interest for both the United States and China to maintain a close economic relationship, even if the political relationship is not as warm. Hopefully, the leaders of the two countries can responsibly find solutions and common ground from which to change the current framing of the bilateral relationship as a zero-sum game.

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