Counting the cost of US-China decoupling: Is there a way back?
By Ilan Vertinsky, Yingqiu Kuang, Dongsheng Zhou and Victor Cui
While the Obama-era optimism of a fully liberalised🔸快乐10分玩法说明 is over, so too is the all-out trade war initiated the Trump presidency. Today, a frostiness has settled over US-China relations, as the Biden Administration contemplates🔸快乐10分玩法说明 as the “most serious long-term threat to world order,” and pursues a policy of full-spectrum decoupling with Beijing. However, resistance to such a path is mounting, as the US’ leading multinationals, as well as some of its closest allies, have baulked at the potential costs and damages involved, and are now urging a more nuanced approach to rationalising🔸快乐10分玩法说明’s rise as a global power.
In a recent assessment of the current relations and ‘action/reaction’ geopolitical dynamic between the US and🔸快乐10分玩法说明, we have made three main findings:
1) The costs of decoupling are prohibitive to both🔸快乐10分玩法说明 and the US. Accordingly, current levels of resistance from US allies and MNCs is likely to grow.
2) Washington decision-makers have overstated the threat that ‘China’s rise’ poses to the survival of the liberal world order.
3) The US decoupling agenda is driven by a fear of🔸快乐10分玩法说明 threatening its technological primacy, but🔸快乐10分玩法说明’s innovation levels are likely to slow down in the coming years, reducing this fear.
Both sides risk staggering costs of decoupling
The US economy is increasingly dependent on🔸快乐10分玩法说明 for imports (particularly manufacturing supplies and advanced materials), FDI flows, and the contributions made by Chinese students in living fees and tuition expenses. Decoupling with🔸快乐10分玩法说明 risks all of these value streams, and would constitute losses of over $700 billion in sales and $50 billion in profits for American companies who export to the Chinese market.
Alongside the loss of the world’s most important (and fastest growing) consumer market, decoupling would force American MNCs out of the most comprehensive and large-scale manufacturing chain in the world, leaving them with no single-country alternative. The average penetration of 极速快乐十分20选8开奖结果🔸The top 30 global brands (many of which are American) reached 40% in🔸快乐10分玩法说明 across the ten large consumer categories back in 2017, compared with just 26% in the US market.
Similarly, many of America’s closest allies are as deeply interconnected with the Chinese economy. This can be seen in the growing proliferation of bilateral investment treaties (BITs) and free trade agreements (FTA) between🔸快乐10分玩法说明 and rule-of-law countries such as Australia, the UK, Japan, Israel and most of Europe’s leading economies. As a ‘New Cold War’ between🔸快乐10分玩法说明 and the US threatens to develop, traditional US allies are refusing to ‘pick a side’, instead strengthening their relationships with Washington and Beijing.
China, meanwhile, is deeply integrated into the world market, heavily trading with and investing in practically every region worldwide. Should decoupling occur, over 50% of Chinese exports will be affected. More worrying is the prospect of cutting🔸快乐10分玩法说明 off from the invaluable technologies of advanced economies, and the foreign training of its professionals and scientists. While🔸快乐10分玩法说明 is much better equipped to weather the economic cost of decoupling (in the short-to-medium term, at least), its technological innovation would be greatly slowed, almost immediately.
Washington fears the ‘Rise of🔸快乐10分玩法说明’
The Trump-era policy of using technology restrictions to contain Chinese firms has been carried over into the Biden Administration, borne from the fear that🔸快乐10分玩法说明’s rapid technological progress is bound to keep accelerating in the long run. More specifically, Washington fears that🔸快乐10分玩法说明’s techno-nationalism will become more aggressive, leading to greater and more brazen theft of intellectual property from the US and other rule-of-law countries.
Overall, American political leadership consistently touts the cultural values and political aims of both nations to be too opposing and their differences too insurmountable to maintain an open, liberal and collaborative world order. This narrative represents a greatly oversimplified view of🔸快乐10分玩法说明’s aspirations, and objectives in the ongoing conflict.
Part of the Chinese Communist Party’s (CCP) founding narrative is to achieve a ‘well deserved’ position in the international system as a major player, but to get there peacefully. Despite on-going US decoupling efforts,🔸快乐10分玩法说明’s geopolitical manoeuvrings are largely defensive in nature, and it continues to show active support for international institutions and agreements, particularly those that align with its economic and technological advancement goals. This is in stark contrast to the overtly isolationist withdrawals of the Trump Administration (e.g. Paris Accord, Trans-Pacific Partnership, etc.).
However, this stance may not endure forever. When threatened with decoupling (by the US or elsewhere)🔸快乐10分玩法说明’s typical response is to redouble its self-reliance efforts, rather than bend to ultimatums. If pushed further, Beijing may choose to opt out of the Western-led international system altogether, pursuing the creation of its own unilateral structures and systems, while trying to actively undermine its global rivals, something it has largely refrained from doing so far.
A decline in🔸快乐10分玩法说明’s innovation growth may ease US fears
China’s astonishing breakthroughs in technology and innovation certainly display the strengths of its state-centric approach, but the assumption by Washington that this trend will keep accelerating in the long term ignores several key factors.
Primarily, rapidly increasing centralisation and control of government programmes are eliminating the conditions that supported the exceptional technological innovation progress that🔸快乐10分玩法说明 has enjoyed in recent decades. Efficient mobilisation of resources, led by the state, will not be enough to counterbalance the problems associated with a lack of freedom to experiment and, ultimately, innovate.
Another crucial issue is🔸快乐10分玩法说明’s competing need to fund its military modernisation efforts alongside its ongoing techno-nationalistic and innovation programmes. Dwindling resources are being pulled in both directions, even as🔸快乐10分玩法说明 faces a declining supply of new labour – a hangover from the ‘One Child’ era.
These are significant and long-term challenges for🔸快乐10分玩法说明 to overcome. As they begin to bite, an appreciable slowdown in innovation may allay Washington’s fears, disincentivising any further trade restrictions or technological barriers.
Will the ‘New Cold War’ thaw?
Despite growing awareness on both sides regarding the crippling costs of decoupling, this doesn’t seem to be translating into any meaningful attempt to thaw the US-China relationship. The conflict for technological primacy is embedded in a complex net of international relations, stakeholders and issues. This makes a rapid reversal of US decoupling policies unlikely, especially if unprompted by a major geopolitical shock of some kind (e.g. the need to collaborate in the face of a new pandemic or regarding the climate change crisis).
However, as the true extent of their interdependence is revealed, decoupling processes have slowed down in recent years, and have in some cases been reversed entirely. Since fear and nationalism have primarily driven the “need” to decouple on both sides, a greater understanding of🔸快乐10分玩法说明’s limitations, as well as its strengths, may help reduce fear in Washington of🔸快乐10分玩法说明 as a threat to its survival and to the liberal world order. Similarly, increasingly strident calls from MNC leaders and US allies to accept that🔸快乐10分玩法说明 is not seeking to radically disrupt or undermine such an order (and that its ambitions are much more limited and defensive in scope) may also speed the slow thaw of US/China relations, avoiding the realisation of a decoupled world and all that would entail.
2023年快乐十分开奖结果🔸The above is based on an article entitled, “The political economy and dynamics of bifurcated world governance and the decoupling of value chains: An alternative perspective,” published in the Journal of International Business Studies2023年快乐十分开奖结果🔸 here.
2023年快乐十分开奖结果🔸Ilan Vertinsky is the Vinod Sood Professor in International Business at Sauder School of Business, University of British Columbia. Yingqiu Kuang is a Research Fellow in the Department of Political Science, University of British Columbia. Dongsheng Zhou is a Professor of Marketing at CEIBS. Victor Cui is a Associate Professor (Entrepreneurship, Innovation, and Global Strategy) at Conrad School of Entrepreneurship and Business, University of Waterloo.