The Great Decoupling – ‘Chimerica’ no more
With the US move on Oct 7 to impose controls on exports of advanced chips to China, the two global powers are now well on the road towards a geoeconomic decoupling and geostrategic rivalry.
Mon, Oct 17, 2022 - 5:03 PM
UPDATED Mon, Oct 17, 2022
IN RECENT years, a number of foreign policy experts have held to the view that notwithstanding the rise of economic nationalism and the growing push against free trade and immigration, globalisation still remained alive and well and would survive the 2008 global financial crisis, the election of US President Donald Trump, Brexit, and the geoeconomic consequences of Covid-19.
Similarly, against the backdrop of growing economic and military tensions between China and the United States that seemed to produce political backlash in both Beijing and Washington against the notion of “engagement” between these two global powers, contrarian thinkers challenged the idea that we were moving in the direction of a new Cold War that would pit the two nations against each other.
Indeed, historian Niall Ferguson (who coined the term “Chimerica” to describe the relationship between America and China) argued that the two powers have evolved into one economy accounting for around 13 per cent of the world’s land surface, about one-third of its gross domestic product, and over half of the global economic growth during the heydays of globalisation. Hence, a divorce between these two powers could prove to be devastating in economic terms to both sides.
But unfortunately the time has come for those who have been resisting writing obituaries for globalisation and who have refused to buy into the predictions that China and the US are now on the road towards a geoeconomic decoupling and geostrategic rivalry, to admit that they may have been wrong in their more bullish forecasts, especially when it comes to US behaviour; that the US-China tensions could involve more than just trade tariffs, restrictions on investment, visa controls, or a more restrictive form of engagement.
Indeed, future historians may point to Oct 7, 2022 – when the Bureau of Industry and Security (BIS) at the US Department of Commerce announced major controls on exports to China of advanced semiconductors, chipmaking equipment and supercomputer components, which in practical terms means cutting China off from advanced chips made by American companies that use US technology – as the day in which globalisation finally died and Cold War II started.
The announcement came a few weeks after Congress passed the Chips Act, and just a few days before President Joe Biden issued a 48-page national strategy document that stated that China was “the only country with both the intent to reshape the international order, and increasingly the economic, diplomatic, military and technological power to advance that objective”, which in real terms means that the Chinese goal is to replace the US as the global hegemonic power.
The main challenge facing the US in the coming years would be “outcompeting China”, said Biden, pointing to what is gradually becoming the zero-sum-game nature of the rivalry with Beijing, that runs contrary to the tenets of globalisation, which assumed that the economic and technological development of America and China would benefit the interests of both nations.
In a way, the opening section of the strategy document seemed to provide the intellectual grounding for the Oct 7 announcement, stressing that it wouldn’t be possible anymore to separate the economic and military components of the Sino-American relationship. China’s goal was to degrade the technology advances of the US and its Western allies, which would mean that controlling exports of key technologies to China was a no-brainer. Or, as a headline in The New York Times put it bluntly, the US was now “Choking off Tech to China”.
To put it in more specific terms, a China that develops supercomputers and a flourishing artificial intelligence (AI) sector may have sounded, once upon a time, as a sign of economic progress that could even create opportunities for more cooperation between the two countries in those areas.
But now, the spectre of China gaining more access to advanced supercomputers and AI capabilities means that it would be in a better position to develop more advanced hypersonic weapons systems that could pose a major threat to the US if the two nations go to war. The expectation, therefore, is that Washington would soon move to impose restrictive measures on other strategic sectors like biotech and even manufacturing.
Biden’s National Security Advisor Jake Sullivan made that point last week (Oct 12) in Washington when he talked about a “small yard, high fence for critical technologies” – the “yard” including Taiwan, South Korea, Japan, and India, and other Western economies.
Sullivan explained that “choke points for foundational technologies have to be inside the yard, and the fence has to be high” so as not to allow China “to exploit American and allied technologies to undermine American and allied security”.
Hence under the rules of this new Cold War, national security concerns override the principles of free trade, as the US tries to incentivise semiconductor manufacturers like Taiwan’s TSMC and South Korea’s Samsung to build new facilities in the US, which would respond to American economic and security interests and those of its allies, while China continues subsidising its semiconductor industry. That, in turn, is bound to change the pattern of investment and the direction of supply chains, which would now be more affected by political decisions of governments than by market forces.
The decision to impose major controls on exports to China of advanced semiconductors was a unilateral move on the part of the US. So whether other governments, including US allies and partners in Asia, would follow the American lead even if that could lead to heavy retaliation by China remains to be seen.
At the same time, the American private sector has some serious reservations about the new aggressive US strategy that at its core is based on expectations that the technological and eventual economic decoupling from China is a done deal.
US policymakers and lawmakers from both parties have been exerting pressure on American companies to reassess their ties with China, warning them that a Chinese invasion of Taiwan would pose an overwhelming risk to their business interests. In any case, these companies are likely to be impacted by the probable retaliatory moves by China and formulate their business plans based on those expectations.
And then there is the Big Question: Is it really in American interests to slow the growth of China and start building fences that would restrict economic ties with the Chinese and could lead to a long and costly Cold War between the two nations? That would eventually slow the growth of the entire global economy and put an end to what was an era of prosperity and peace.