The Sino-American Decoupling Process

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The Sino-American Decoupling Process

Talk of the world’s two largest economic powers “decoupling” surfaced in 2018 as their trade battle began. Intractable issues included China’s violation of WTO rules and its aggressive military posturing as well as its intellectual property theft and forced technology transfer.

In 2019, the White House considered curbs on U.S. investments in China such as delisting Chinese stocks in the U.S.  In the arena of technology, ties between the countries also steadily worsened, and China was said to start efforts to wean itself off U.S. tech.  At the same time, the United States has used its economic and diplomatic power to undermine Chinese plans to dominate and infiltrate the world’s 5G infrastructure.

Then, in 2020, the coronavirus crisis, underscored to the United States and all of China’s other trading and investment partners the value of diversification away from China.  The outbreak, which began in Wuhan, upended supply chains, as Chinese cities went into lockdown, restricting transportation and shuttering factories for longer than originally planned.  For instance, many automakers were temporarily forced to shut down their plants in China due to the containment efforts to curb the outbreak.  Apple’s biggest supplier Foxconn took months to fully resume production at its factories in China as well, and this led to a big drop in iPhone shipments.

While painful, it also vindicated the long-held assumptions of many in the administration.  For instance, U.S. Secretary of Commerce Wilbur Ross said that the deadly outbreak in China could be good for America.  Why?  Because it would “lead businesses to reconsider their supply chains and help to accelerate the return of jobs to North America:  Some to the U.S. and some to Mexico.”

Notably, while the complete separation of the world’s two largest economies is unlikely, shifts have started to take hold in China.  Affluent families, startups, tech companies, and non-U.S. foreign businesses are being led by the Chinese government to make choices that exclude the U.S., with potentially far-reaching consequences for global trade.

To satisfy the short-term concerns of both sides, an interim Phase One agreement has enabled a temporary de-escalation in the trade war.  However, this simply delays the inevitable.

Going forward, it appears that the United States and China will be driven toward a different sort of relationship that will better serve the national interests of the United States.  This new relationship will mean dramatic changes to investment flows, supply chain structures, technology sharing and various types of human interactions, particularly as related to the education sector...

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