Signs of Economic Decoupling Emerge Between China and the US
In recent years, there have been increasing signs that the economic relationship between China and the United States is starting to evolve. While officials prefer to use the term de-risking rather than decoupling, the underlying message remains the same – a reduction in economic inter-dependence between the world’s two economic superpowers.
The concept of decoupling can be likened to a breakup in a personal relationship. It doesn’t necessarily mean an abrupt divorce, but rather a gradual and steady reduction in their economic ties. For decades, China has been known as the world’s factory floor, while the US served as its biggest consumption engine. This mutually beneficial partnership has driven global economic growth. However, recent developments suggest a shift in this dynamic.
One example of decoupling is evident in the Chinese President Xi Jinping’s approach to forging new relationships. This includes reaching out to French President Emmanuel Macron and striking a deal with Japan for crucial minerals needed for the production of electric vehicles. These moves demonstrate China’s efforts to diversify its trade partnerships beyond the United States.
The decline in confidence in globalization following the 2008 financial crisis, coupled with Mr Xi’s ascent to power in 2012, marked a turning point. The Trump administration further intensified the trend with its trade war against China, accusing Beijing of unfair economic policies. This led to a series of tariffs on Chinese products, aimed at rebalancing the trade deficit.
President Joe Biden has continued to maintain a tough stance on China. His administration has enacted new rules to restrict US investments in certain Chinese technology firms, particularly in areas such as semiconductor, quantum computing, and artificial intelligence. Additionally, his domestic agenda includes a $370 billion plan to support businesses driving the transition to a low-carbon economy, which aims to reduce China’s market power over key raw materials.
To try and ease tensions, the Biden administration has taken to calling its approach de-risking rather than decoupling. However, the Chinese government remains concerned about the implications of this strategy. US Treasury Secretary Janet Yellen has warned that a complete separation of the two economies would be disastrous for both countries.
As the process of decoupling continues, it is important to note that this is not a straightforward path. The economic ties between China and the US have been deeply intertwined for many years. Nonetheless, the signs of economic decoupling are becoming more apparent, and both countries are adjusting their strategies accordingly.
In conclusion, signs indicate that a slow and gradual decoupling of the economies of China and the United States is taking place. While it is not an all-or-nothing proposition, there is a clear movement towards reducing economic inter-dependence. The evolving dynamics between these two economic superpowers will undoubtedly have a significant impact on global trade and the world economy.
