The Complexities of US-China Decoupling: Evaluating the Effectiveness and Long-Term Consequences

In this episode, we delve into the intricacies of the US policy of decoupling from China and examine its mixed results. While bilateral trade between the US and China has decreased and investment flows have adjusted, there are still significant entanglements between the two economies that complicate the process.

We explore how transshipment, intermediate goods, and critical minerals contribute to the continued integration of the Chinese economy with those of America's allies, despite efforts to decouple. This highlights the challenges faced by the US in fully disentangling from China.

The US is strategically focusing on select security-critical sectors, such as the semiconductor industry, in an attempt to de-risk its economy from China. However, the success of this strategy remains uncertain, as the costs of decoupling are high and there are significant challenges in reshoring production.

Furthermore, we examine how Asian countries are grappling with the delicate balance between their security relationships with the US and their economic ties with China. The podcast explores the complexities and dilemmas faced by these countries as they navigate the shifting dynamics between the two global powers.

Overall, the effectiveness of the US-China policy of decoupling is difficult to evaluate, given the mixed results and ongoing entanglements. The long-term consequences of this policy also remain to be seen, as it continues to shape the economic landscape and geopolitical relationships between the US, China, and their respective allies.

When is economic decoupling not economic decoupling? When it drives your allies to tighter commercial links with your adversary. That’s the situation the US finds itself in today, when it comes to its policies directed against China. Since the Trump administration put tariffs on Chinese imports in 2018, the US has been trying to extricate itself from commercial ties with the world's second-largest economy. President Biden has expanded the policy to keep China locked out of US supply chains in a few key high-tech industries. On the outside it looks like decoupling or de-risking is actually working. Business operations are relocating to other southeast Asian countries, India, and Mexico. But in crucial ways, the process is only skin deep. Take a closer look and the exodus from China is actually driving closer integration between the Chinese economy, and those of America’s friends. 

On this week’s podcast, hosts Mike Bird, Tom Lee-Devlin and Alice Fulwood, examine whether US policy towards China is really working. Caroline Freund, Dean of the UC San Diego School of Global Policy and Strategy, explains how the countries that are expanding their exports to the US are at the same time becoming more integrated in supply chains with China. And Chris Miller, Associate Professor of international history at Tufts University and author of “Chip War: The Fight for the World’s Most Critical Technology” describes how reshoring, and lengthening supply chains is going to come at considerable cost.

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