Illustration: Craig Stephens
I remember watching a short video about two men balanced at opposite ends of a see-saw that was somehow on the high seas. As one man with a sword moved towards the other to kill him, the see-saw tilted, throwing both men off balance – and into the sea. It was deadly foolish. Washington’s actions to effectively decouple economically from China fall into the same category.
Contrary to its professed disinterest in decoupling, Washington has pushed ahead with it in a bid to isolate and contain China.
It slapped tariffs on up to US$360 billion worth of Chinese imports, is roping in allies and “like-minded” countries to form exclusive trading blocs in key sectors, has pushed businesses to shift manufacturing away from China and blacklisted over 1,000 Chinese companies and institutions.
It has curbed Chinese investment in the US, banned imports of Chinese technology products such as solar panel components and 5G-related equipment, and prohibited hi-tech exports to China, including cutting-edge microchips and the gear to make them. There have also been Congress discussions on stripping China of its permanent normal trading status.
In response, China has opened its economy, embracing foreign businesses from around the world and making more sectors available to foreign investors. It is turning Hainan into the world’s largest free-trade port.
To promote imports, it has the world’s first government-sponsored national import expo, in Shanghai. And it is in active talks to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, after winning membership to the Regional Comprehensive Economic Partnership, the world’s largest trading bloc.
Meanwhile, China has stepped up efforts to develop critical technologies and is working to fully integrate its domestic market to capitalise on its huge potential.
China’s retaliation against US attacks has been limited, largely out of concern for global supply chain stability. For all its talk of pushing back, Beijing has so far sanctioned only two American companies: Raytheon and Lockheed – for crossing the reddest of China’s red lines: selling arms to Taiwan.
Clearly, neither “superpower rivalry” nor “geopolitical contest” is an accurate description of the US-China conflict. China has not been the aggressive party – it has neither the ability nor the strategic intention. Beijing is far from enthusiastic about decoupling. Its countermeasures are defensive, taken only to safeguard what it sees as its legitimate right to develop.
Indeed, Washington’s actions have posed a stark challenge to China, and caused harm. Tariffs have slashed China’s share of US imports to less than 18 per cent in 2021, down from 21 per cent in 2018. After the US crackdown on Huawei Technologies, the once-successful company has struggled: its revenue grew just 0.9 per cent last year while profits plummeted by nearly 69 per cent.
But the US is shooting itself in the foot, too. The two economies are so tightly entwined that it is almost impossible for the US to harm China without hurting itself. Tariffs have also hit American consumers and manufacturers hard. A ban on imports of Chinese photovoltaic products led to an estimated 23 per cent drop in new solar capacity installed in the US last year.
Meanwhile, America’s chip export ban to China, which consumes roughly 40 per cent of global chip production, is depriving US businesses of access to China’s huge market and an enormous amount of innovation. Clearly, decoupling does more harm than good for the US economy.
Decoupling means dismantling supply chains forged over many years to divert the flow of goods, capital and people, presumably to where the US desires them to be. It will be a costly and time-consuming process.
This decoupling will not improve efficiency. Rather, it is a geopolitical tool to cut China’s links from the rest of the world and to maintain US hegemony.
As Martin Wolf put it in the Financial Times, the “politicisation of trade is sure to lead to wasteful outcomes”. Decoupling disrupts trade and fragments the global economy, resulting in efficiency losses. The International Monetary Fund estimates that a strategy of focusing foreign direct investment among geopolitically aligned countries could reduce global output by around 2 per cent in the long term.
Decoupling from China is akin to sabotaging the world’s economic growth engine. China is a major trading partner for some 140 countries and the largest investor in many nations in the Global South. Over the past decade, it has contributed to around 30 per cent of global economic growth.
The IMF expects China to continue to account for a third of global growth this year. Asian countries in particular will benefit from China’s economic expansion. A percentage point increase in China’s gross domestic product is estimated to boost the output in the rest of Asia by 0.3 percentage points.
Malaysian industry and trade minister Tengku Zafrul Aziz has said he disapproved of a US-China decoupling because it was not good for the global economy, even though Malaysia benefits from US friendshoring in the short term.
Despite the heavy global price, the Biden administration seems determined to go down this path. US Treasury Secretary Janet Yellen indicated as much last week when she said “our concerns about our security and values” would motivate the US to take action that may have an economic impact.
Like the man with the sword who ended up killing himself and his opponent, Washington should beware of taking the rest of the world down with it in its race to the bottom.
Zhou Xiaoming is a senior fellow at the Centre for China and Globalisation in Beijing and a former deputy representative of China’s Permanent Mission to the United Nations Office in Geneva
28 Apr, 2023 https://www.scmp.com/comment/opinion/article/3218349/all-its-protestations-us-set-decoupling-china-act-will-cause-global-economic-harm