China
2019.11.26 13:21 GMT+8

Analysis: Demystifying the U.S.-China decoupling

Updated 2019.11.26 13:21 GMT+8
By Yu Jing

As China and the U.S. are trying every means to hammer out a resolution to the protracted trade dispute, talks of a U.S.-China decoupling are gaining prominence. Last month, prompted by the rampant speculation that a China-U.S. decoupling is taking place, U.S. Vice President Pence said that "the answer is a resounding no."

Despite reassurance from Pence, a flurry of hostile legislative and regulatory acts against China pointed in the opposite direction. Last week, a so-called Hong Kong Human Rights and Democracy Act was passed in the U.S. Congress. On November 22, the Federal Communications Commission blocked American telecommunications companies from using federal funds to buy Huawei and ZTE equipment. A hearing is about to be held in the Senate on Tuesday about the alleged threat of Chinese efforts to recruit scientists in the U.S.

"The current U.S. administration's foreign policy approach towards China can be summarized as strategic competition," said Chen Xiaogong, former deputy director of the Office of the Central Leading Group for Foreign Affairs of China, at a recent panel discussion hosted by China Review Think Tank Foundation and Institute of International Relations of Tsinghua University.

In the first National Security Strategy paper published under the Trump Administration, it called China a "strategic competitor", in sharp contrast to the engagement policy pursued by the Obama Administration, which treated China as a "responsible stakeholder." 

Chinese Vice Premier Liu He (3rd L) speaks during a meeting with U.S. President Donald Trump in the Oval Office of the White House in Washington D.C., February 22, 2019. /VCG Photo

China and the U.S. are the only two economies that have a GDP of over 10 trillion U.S. dollars, with the gap between them closing fast in recent years. Amid China's quick catch-up, the U.S. used tariffs as a means to force China to change its trade and investment rules to frustrate China's efforts to close the development gap and curb its drive to seek a greater degree of modernization, Chen added.

As the escalation of tariffs intensified, President Trump tweeted that U.S. companies are advised to "immediately start looking for an alternative to China", which was seen by observers as the beginning of a greater effort of decoupling – a break in trade links and unbundling of supply chains. As the Huawei incident blew up to a larger conflict over cutting down U.S. companies' reliance on information and communications equipment from China, there is fear that decoupling in the economic world will spiral into the tech world.

The Trump administration has passed a series of measures to limit the access of Chinese tech firms to the U.S. market. For example, broadening the government's review of foreign investment in U.S. companies in fields of critical technology and placing Chinese tech firms on the U.S. entity list, which prevents them from buying from their American suppliers. Denying Chinese tech companies' access to the U.S. market, the argument goes, would frustrate China's attempt to overtake the U.S. amid the global tech competition.

"The U.S.-China competition, at its core, is about the fight for dominance in the global supply chain and technological development," Chen concurred.

People pass by Huawei stand during the annual Web Summit technology conference in Lisbon. /VCG Photo

According to a report by the Boston Consulting Group, 85 percent of 500 Chinese companies surveyed across various industries, ranging from consumer to energy, are active players in the field of AI, either in adopting AI into some existing processes or running pilot AI initiatives. Approximately 51 percent of companies in the U.S. qualify as active players, ranking behind China in terms of its share of active players.

It is thus unlikely to see a major shift in the U.S. approach of strategic competition against China, said Su Ge, Chairman of the China National Committee for Pacific Economic Cooperation and former President of the China Institute of International Studies, at the panel discussion. Though the two sides may achieve a temporary trade truce, strategic anxiety that the U.S. has over the quick catch-up by China is not easy to go away.

This meant that in the longer time, a bipartisan consensus on China as a strategic competitor is likely to stay, even as the U.S. comes to embrace another election year. Wang Honggang, director of the Institute of American Studies at China Institutes of Contemporary International Relations, cautioned that the upcoming 2020 election might magnify some of the underlying differences in attitude that China and the U.S. have, including on issues regarding Taiwan, Hong Kong, and the South China Sea, etc.

"The U.S. and China now find that their mutually agreed framework on managing those areas of major disagreement have broken down, but that does not mean that we are stepping on a path of no return," said Wang. "At any point in the history of Sino-U.S. relations, it is hard for both sides to deal with those issues, but the two always managed to find a way."

Liu He (L), Chinese Vice Premier, and Robert Lighthizer, U.S. trade representative, wave to members of the media before a meeting at the Office of the U.S. Trade Representative in Washington, D.C., October 11, 2019. /VCG Photo

At a speech given to the UN member states earlier this year, UN Secretary-General Antonio Guterres warned of the looming risk of the bifurcation caused by the U.S.-China trade war, with the U.S. and China creating rival internets, currency, trade, financial rules and their own zero-sum geopolitical and military strategies.

A dramatic decoupling will force countries around the world to choose a side and increase inefficiencies since the benefits of global free trade are at risk. Worst of all, it will undermine the stability of the international multilateral system, which both China and the U.S. have so painstakingly constructed following the second world war, and both have reaped extensive benefits from.

Though there is still inflammatory rhetoric about the alleged national security threat posed by China to the U.S., both sides need to show greater restraint to prevent the trade war from hardening into a new cold war. The current dispute should not be categorized as an ideological one and as evidence of the fundamental incompatibility of the two systems, cautioned Su from China National Committee for Pacific Economic Cooperation.

There are extensive areas in which the U.S. and China share common interests, in the field of climate change, in formulating a global framework to regulate AI technology and the prevention of the spread of infectious diseases. "Cooperation is the only choice for China and the U.S. to go forward," Su said.

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