William Alan Reinsch
A new term has penetrated the trade wonkosphere recently: decoupling. The term refers to the process of separating the Chinese and U.S. economies, but, of course, as with most things in economics it is more complicated than that. It is hard to tell what is going on, because what people say and what they do are not always the same, and it is hard to predict whether actions taken will be temporary or permanent—separation or divorce. It is also hard to allocate blame, or credit, depending on your point of view.
It does seem clear that the leaders of both countries are embracing decoupling. Xi Jinping has pronounced the United States an unreliable supplier, but even before that he was planning for China to develop global champions in 10 critical technologies with the explicit aim of competing against and ultimately displacing Western leaders in those sectors. This is reflected in the “Made in China 2025” initiative and will likely be a key element of the 14th five-year plan currently being drafted. His goal appears to be to make China independent of Western technology to the extent he can.
Meanwhile, the Trump administration has been encouraging U.S. companies to leave China and remove Chinese products from their supply chains and has been blocking Chinese investment in the United States, which has dropped dramatically anyway because of Covid-19 and Chinese efforts to limit outbound investment. Much of the administration’s argument is national security-based, as in the Huawei case, which is an easier sell to Congress and the public than more abstruse arguments. Both presidential candidates have advocated reshoring—bringing U.S. companies home—in varying degrees of detail. This is not exclusively aimed at China, but China is clearly a primary target.