Wednesday, July 17, 2024

America vs. China: The Great Decoupling


Tensions are rising between the United States and China, and there is talk of “separating” the two countries’ economies. But is it a good idea? Christine Lagarde, president of the European Central Bank, doesn’t think so. He said on CBS on Sunday that America-China are separated face the nation, “Less economic growth, less prosperity in the world, will lead to more poverty around the world. So I think it’s something that should be avoided by all means.”

However, this decoupling may already be underway. Bloomberg The report said US-China trade was projected to reach a record $690 billion in 2022, indicating that “both the US and China have meaningfully reduced the share of their imports coming from each other. ” The dollar number is big, but Chinese goods account for only 16.6 percent of imports in 2022 — five percent less than in 2017. The share of US exports going to China also fell.

As China and the United States prepare for a possible war, both sides have their own reasons for separation. China has seen how America isolated Russia’s economy After the invasion of Ukraine, therefore, leaders do not want to leave their economy dependent on exports to the US. american leaders Doesn’t want China to have access to America’s most advanced technology If the two countries end up in conflict. But partition will have an impact on the world economy. “The industry is kind of united,” explained Antonia Tzinova, a partner at the law firm Holland & Knight. the new York Times, “We don’t want that.”

It is not clear whether decoupling is even achievable. “While Western leaders try to brush aside decades of globalization, Asian countries from Bangladesh and Indonesia to Malaysia and Thailand see China as the center of their economic future,” writes for James Crabtree financial Times, Instead of isolating China, it “often leaves countries in regions such as Southeast Asia economically dependent on China, not less.” Even companies that have moved their production to other countries still buy parts from China. The actual decoupling “is likely to be more difficult than it looks.”

“Even America’s closest ally is not going to isolate itself from China either politically or economically.” Bilhari Kaushikan writes foreign Affairs, Few Western countries would be willing to give up the benefits of selling to and buying from China, and right now “China has no real alternative to the West for access to vital technologies and vital markets.” The US and China will compete “vigorously”, but for the time being they will have to “accept the risks and vulnerabilities of being connected to each other.”

All this talk of isolation can overlook the important effects it has on other countries, writes at Tamás Meszáros diplomatic, “The reducing rhetoric reflects the fact that the United States and China play very different economic roles in East Asia and have very different sources of economic power.” China is a “major center” for manufacturing and production throughout the region, while the United States remains a major market for all those goods – as well as “by far” the largest source of foreign investment. Asia’s leaders “need both great powers to remain engaged in East Asia, and economic realities suggest they would do well to do so.”

It is not possible for the United States and China to be completely separated, unless the two countries go to war. But a “selective decoupling” is “inevitable,” U.S. Rep. Mike Gallagher (R-Wisc.) tells Bloomberg, Big companies such as Apple and Disney will have to undertake “complex and costly” restructuring to ensure that supply chains containing sensitive material are moved out of China. The US wants to curb investment and sharing of technology in areas such as “quantum computing, bioengineering, advanced semiconductors” that could be used for military purposes.

There is more to come. The CHIPS Act, passed last year, aims to increase US investment in the domestic semiconductor industry, asia times report, while the Biden administration sets about strengthening export controls for sensitive technologies. A concern for the wider global economy is ensuring that military-grade technology does not mix with civilian-grade technology. “If the limit is not clarified, the private sector will face huge uncertainties which could reduce trade and investment,” asia times adds up.

As Lagarde’s comments suggest, it is not entirely clear that America’s closest allies will go along with US efforts to disengage. Some “derisking” is needed, EU President Ursula von der Leyen said in a speech recently, but only to a limited extent. “Decoupling is clearly not feasible, desirable or practical for Europe.”