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Published: 01:02, June 07, 2023 | Updated: 09:47, June 07, 2023
‘Decoupling’ does not sell well among US businesspeople
By Michael Hui and Kacee Ting Wong
Published:01:02, June 07, 2023 Updated:09:47, June 07, 2023 By Michael Hui and Kacee Ting Wong

In the US, the advocates for decoupling from China can stay irrational much longer than businesses and consumers can stay vibrant. To bring rationality and economic common sense, US Treasury Secretary Janet Yellen recently spoke out against decoupling. In the name of containing China, decoupling is mired in an ossified Cold War mentality and runs counter to the theory of international division of labor based on global value chains (Escaping Dependency and Trade War, in China Economist, January-February 2023). 

From the perspective of the US, Yellen is fully aware that the pain of decoupling is greater than the pain of tolerating the peaceful rise of China. Trying to avert a doomsday possibility of economic disaster, she asked for a constructive and fair economic relationship between the US and China. She asserted that decoupling from China would be disastrous. But her pro-economic interdependence stance should be read together with her qualifying comments on national security. Unable to strike a balance between these two perceived conflicting goals, she has tried to prioritize “national security concerns” over economic considerations. She defended Washington’s economic restrictions on China, saying that they were national security issues that were not designed to stifle the Chinese economy and its technological development.

The inescapable fact of the matter is that most American business executives don’t want to decouple from China. To cite an example, Intel exports billions of dollars’ worth of microchips to China, whose market accounts for about 50 percent of global semiconductor demand (The Strategic Challenges of Decoupling, in Harvard Business Review, May-June 2021). According to a recent flash report by the American Chamber of Commerce in China, 40 percent of its members had no plans to change their investments in China from 2023 to 2025, and 20 percent said they were planning to increase investments at different levels. More recently — last week, to be specific — Tesla founder Elon Musk told Chinese officials in Beijing during his first trip to China in three years that he opposes decoupling the world’s two biggest economies, hinting at a bigger Tesla production presence in China.

Keeping a safe distance from national security issues, many scholars and former top officials of the US just focus on the disadvantages of decoupling. These scholars include Kristalina Georgieva, David Dollar, Stephen Roach, Adam Posen and Stephen DeAngelis. Former US Treasury chiefs Henry Paulson and Larry Summers are two political heavyweights who are against decoupling. Some proponents of decoupling dismissed the opinion of Paulson because of his “close ties” with China.

 Instead of exaggerating elusive “threats” from China, the US should strike a right balance between the need to maintain mutually beneficial ties and the need to safeguard national security shaped by flawed cold-war value systems. The US should respect China’s right to strengthen its technological power and reduce its technological dependence on developed countries

It’s also interesting to note that two of the European Union’s hawkish leaders — Ursula von der Leyen, president of the European Commission, and Annalena Baerbock, the German foreign minister, now prefer to replace decoupling with “de-risking”, which means reducing EU’s dependence on China. For the sake of France’s economic interests, French President Emmanuel Macron has a negative but pragmatic attitude toward decoupling. German Chancellor Olaf Scholz is also a critic of decoupling.

Georgieva deserves great credit for reminding us that policy interventions adopted in the name of national security have unintended consequences. It could result in a dangerous slippery slope toward runaway geo-economic fragmentation (Confronting Fragmentation Where It Matters Most: Trade, Debt and Climate Action, in IMF Blog).

David Dollar’s study also prompts deep reflection on the sustainability of a decoupling policy. He makes it clear that decoupling is unrealistic. It’s a losing strategy, and the notion that offshore manufacturing production can be brought back to the US through trade protectionism is naive (Forging an Alternative Economic Strategy for Dealing with China, in Ryan Hass, Ryan McElveen & Robert Williams (eds), The Future of US Policy Toward China, Nov 2020).

Posen, a scholar at the Peterson Institute for International Economics, also warns that a unilateral US withdrawal from commerce with China would be partially offset by other economies taking up the market share where the US no longer operated (America’s Zero-sum Economics Doesn’t Add Up, in Foreign Policy, March 24, 2023). It does not make sense for US allies to sacrifice their economic interests and blindly jump on the decoupling bandwagon. Macron does not regard France as a US vassal state.

In spite of the well-researched benefits of economic interdependence, decoupling is an ongoing empirical process and the confluence of a wide range of factors is likely to propel it further in the future (Decoupling in International Business: Evidence, Drivers, Impact and Implications for IB Research, in Journal of World Business, January 2023). Nevertheless, the demand for Chinese products remains strong in the US, including for laptops and computer monitors, phones, video-game consoles and toys. Besides, many Chinese companies have relocated their manufacturing bases to Southeast Asian countries.

To rebuild the foundation for normalizing mutually beneficial relations, both countries should defuse geopolitical tensions that have driven decoupling. Instead of exaggerating elusive “threats” from China, the US should strike a right balance between the need to maintain mutually beneficial ties and the need to safeguard national security shaped by flawed cold-war value systems. The US should respect China’s right to strengthen its technological power and reduce its technological dependence on developed countries. US-initiated technological decoupling is the mother of technological autonomy in China. In the global value chain led by multinational companies, developing countries are often trapped in low-value links with a subordinate position. With a determination to boost technological autonomy and equipped with a strong technological base, China is different from other developing countries.

What is certain is that economic and trade cooperation is the bedrock of the Sino-US relationship. Decoupling is easier said than done. In fact, trade between the US and China is on track to break records, a signal of resilient links amid the heated “national security” rhetoric in Washington and fears of decoupling (US-China Trade is Close to a Record, Defying Talk of Decoupling, in The Japan Times, Jan 17, 2023).

Michael Hui is director of International Trade Affairs, Chinese Dream Think Tank, and founder of Forever Watch Co. Ltd.

Kacee Ting Wong is a barrister, a part-time researcher of Shenzhen University Hong Kong and the Macao Basic Law Research Center, and chairman of Chinese Dream Think Tank.

The views do not necessarily reflect those of China Daily.

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