Started during the Trump Administration, and largely sustained under President Biden, calls for economic decoupling from China have become ever more pervasive. Fueled by an initial motivation to reduce the risk of global supply chain disruptions that the Covid-19 pandemic laid bare, this sentiment had morphed over time into a desire for a hard decoupling, especially in the areas of strategic technologies. Coupled with efforts to compel re-shoring and ally-shoring in a broad range of industries as a way of sustaining U.S. industrial competitiveness and shielding U.S. national security interests from an accelerating Chinese strategic challenge, the rising interest in some form of decoupling was prompted in large part by Beijing’s “Made in China 2025” initiative and the “New Generation AI Development Plan for 2030”. Hype and rationale notwithstanding, the ‘decoupling’ rhetoric has proven much more difficult — if not, in fact, impossible — to implement. Decades of economic engagement with China, coupled with record inflows of foreign direct investments by multinational companies, have ensured a degree of economic interdependence and inter-connectedness that, by the mid-2000s, prompted historian Niall Ferguson and economist Moritz Schularick to coin the term ‘Chimerica.’

Stable, though unbalanced, the U.S.-China economic relationship has been, the ascent of Xi Jinping and the aggressive promotion of his signature ‘China Dream’ (中国梦, Zhōngguó mèng) initiative, aimed at ushering in the ‘great rejuvenation of the Chinese nation’ (中华民族伟大复兴, Zhōnghuá mínzú wěidà fùxīng), were bound to heighten the level of U.S.-China strategic competition in the 21^st century. Over time, the combination of the U.S.-China trade war in 2018 and rising nationalist sentiments in China only served to deepen strategic distrust and rivalry between Beijing and Washington.

With calls for decoupling having grown louder over the years, Treasury Secretary Janet Yellen, in a speech on the U.S.-China economic relationship at the Johns Hopkins School of Advanced International Studies on April 20, 2023, tried to warn of the inevitable fallback, stating: “A full separation of our economies would be disastrous for both countries. It would be destabilizing for the world” [1]. And yet, Washington by and large continues to exhibit Cold War era strategic thinking at a time when the nature and dynamics of 21^st century power politics call for a long overdue and contextually grounded reassessment of the geopolitical and geostrategic reality. As Justin Winokur recently noted in Foreign Affairs, “Americans remain captured by ideas from a vanishing era when their power reigned supreme. Cold War history …warps how they understand conflict, how they approach negotiations, how they think about their capabilities, and even how they analyze problems” [2].

Washington has in recent months communicated its clear intention to recalibrate the economic interdependence between China and the U.S. Speaking at a press conference on May 21 at the end of the G-7 Meeting in Hiroshima, Japan, President Biden remarked: “We are not looking to decouple from China, we’re looking to de-risk and diversify our relationship with China” [3]. Meanwhile, U.S. Treasury Secretary Janet Yellen, addressing the G-7 Finance Ministers and Central Bank Governors’ meeting earlier that same month, had signaled Washington’s intention to counter Chinese attempts to weaponize economic ties, noting that “[T]here have been examples of China using economic coercion on countries that take actions that China is not happy with from a geopolitical perspective” [4]. In its bid to de-risk and diversify from China, the U.S. is all too readily resorting to tactics resembling the type of economic coercion it is worried China could leverage with increasing effectiveness going forward. To be sure, the expansion of its geopolitical and geoeconomic footprint will invariably increase China’s capability for economic warfare and statecraft in pursuit of national interest, with potentially far-reaching geostrategic ramifications. Yet at the same time, policymakers in the U.S. seem to dismiss outright the suggestion that Beijing’s commitment to expanding and deepening economic ties around the world might also be viewed as a concerted effort to counter, and possibly reduce, Washington’s own potential to deploy economic pressure against a great power rival rather than a self-serving attempt by Beijing to broaden and deepen its own coercive economic potential around the world.

At the same time, one unintended byproduct of Washington’s new policy orientation toward China is that its allies find themselves increasingly caught in the crosshairs of 21st century great power rivalry, to the point where their long-term national economic interests are likely to be adversely affected if they readily submit to U.S. pressure to join in the containment of China. French President Emmanuel Macron, during his state visit to China on April 5-7, drove home that very point when, much to the consternation of Washington, he remarked that the great risk for Europe is that it “gets caught up in crises that are not ours, which prevents it from building its strategic autonomy” [5].

U.S. geopolitical analysis needs to escape the straightjacket of Cold War thinking and grasp the rapidly narrowing strategic window of opportunity to chart a clear-eyed, objective, and balanced course for China policy ― one that recognizes the reality of both engagement and competition ― to usher in a ‘new type of great power relations’ (新型大国关系, Xīnxíng dàguó guānxì).

But as long as calls for containment and decoupling continue to dominate the political echo chamber in Washington, it will only add fuel to the fire of nationalism and reinforce a wolf-warrior diplomacy mindset in Beijing.

Both Beijing and Washington face a geopolitical Goldilock’s dilemma. Approaching it with a (new) Cold War thinking ― as appears to be increasingly the case in Washington ― only ensures that the situation will get worse. On the trade front alone, it should be noted that, unless there is a course correction by Washington, the emergence of rival global economic blocs, dominated by China and the U.S., respectively, might just become a real near-term possibility. According to a recent International Monetary Fund (IMF) report, such a scenario could well contribute to a near 2 percent reduction in global output. And “[I]f global value chains fragment along geopolitical lines, the increase in the global level of consumer prices could range between around 5% in the short run and roughly 1% in the long run” [6], warned Christine Lagarde, president of the European Central Bank (ECB) at a Council of Foreign Relations (CFR) event in New York on April 17.

The challenges and costs of decoupling or de-risking, if done the wrong way, are very real and consequential, both the future of U.S.-China relations and for the global economy.

Two recent developments serve to underscore that assessment. On July 3, China announced that it would impose export restrictions on two rare earth metals (gallium and germanium) that are critical to the production of computer chips. This move came in response to ongoing and deepening efforts by the U.S. to stymie China’s high-tech ambitions. Washington should have anticipated the possibility of China retaliating by weaponizing rare earth exports as it had employed the same economic coercion tactic in 2010 against Japan when nationalist fervor was running high in both countries in the aftermath of a collision of a Chinese fishing trawler and a Japanese coast guard patrol ship off the Senkaku islands. Second, it is worth noting that Chinese scientists are increasingly opting to leave the United States in response to the “increasingly suspicious research climate” [7] they are having to contend with as a result of the Department of Justice’s China Initiative investigations, and seeking positions abroad. Such an exodus of human talent not only has the potential to “hamstring Washington’s tech ambitions” [8]; it also reinforces the fact that a “conflicted innovation policy lies at the heart of 21^st century U.S. technological competitiveness [9].

The combined efforts to decouple/de-risk from China and contain China by attempting to stifle its high-tech ambitions, are likely to trigger a tit-for-tat downward spiral that, paradoxically, may only further increase the China challenge that the U.S. is trying to manage.

Moreover, it could well increase the likelihood of an “improbable war” scenario [10] turning into a very real “Thucydides Trap” [11]. Policymakers in Washington, D.C., would thus be well advised to reflect on the Chinese saying, “Beware of seeking out dragons and destroying them. You may cause more dragons to emerge.” Meanwhile, with China seemingly opposed to “decoupling and breaking lines”, as Xi Jinping noted at a virtual summit of the Shanghai Cooperation Organization on July 4, 2023, both sides should recognize the need for talks and take concrete measures to ensure sustained and stable economic cooperation, all the while addressing the concerns that have fuels calls for decoupling in recent months.

Against the backdrop of an evolving 21^st century international order, the current status of US-China relations reflects not only the inability (or unwillingness?) of political leaders and policymakers in Washington to recognize the limitations on American power, but also the failure to appreciate China’s changing national role perceptions [12]. Time for both parties, to engage in sensible strategic dialogue for the sake of global economic and strategic stability.  

REFERENCES.

1. Remarks by Secretary of the Treasury Janet L. Yellen on the U.S.-China economic relationship at Johns Hopkins School of Advanced International Studies. April 20, 2023. https://home.treasury.gov/news/press-releases/jy1425 (Accessed on July 20, 2023).
2. Justin Winokur, “The Cold War Trap: How the Memory of America’s Era of Dominance Stunts U.S. Foreign Policy,” Foreign Affairs (2023), July 13. https://www.foreignaffairs.com/united-states/cold-war-trap-america-foreign-policy (Accessed on July 20, 2023).
3. “‘We are not decoupling’: G-& leaders agree on approach to ‘de-risk’ from China.” CNBC, 21 May 2023. https://www.cnbc.com/2023/05/22/g-7-leaders-de-risk-china.html (Accessed on July 20, 2023).
4. Ibid.
5. Jamil Anderlini and Clea Caulcutt, “Macron incite les Européens à ne pas se penser en ‘suiveurs’ des Etats-Unis (Europe must resist pressure to become ‘America’s followers’, says Macron),” Politico (2023), April. 9. https://www.politico.eu/article/emmanuel-macron-incite-europeens-etats-unis-chine/ (Accessed on July 20, 2023)
6. Speech by Christine Lagarde, President of the ECB, at the Council on Foreign Relations’ C. Peter McColough Series on International Economics. April 17, 2023. https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230417~9f8d34fbd6.en.html (Accessed on July 20, 2023)
7. Christina Lu and Anusha Rathi, “Chinese scientists are leaving the United States: Here’s why that spells bad news for Washington,” Foreign Policy (2023), July 13. See also: Yu Xie et al, “Caught in the crossfire: Fears of Chinese-American scientists,” PNAS 120, no 27 (2023). https://www.pnas.org/doi/epdf/10.1073/pnas.2216248120
8. Lu & Rathi (2023).
9. Andrew Kennedy, The Conflicted Superpower: America’s Collaboration with China and India in Global Innovation (New York: Columbia University Press, 2018).
10. Christopher Coker, The Improbable War: China, the United States and the Continuing Logic of Great Power Conflict. (New York: Oxford University Press, 2015).
11. Graham Allison, Destined for War: Can America and China Escape Thucydides’s Trap? (Boston: Houghton Mifflin Harcourt, 2017).
12. On China’s evolving national role perceptions, see: Francis Schortgen, “Taking Center Stage: China’s New Role Assertiveness in the 21st Century International System”, in National Role Conceptions in a New Millennium: Defining a Place in a Changing World, edited by Michael Grossman, Francis Schortgen, and Gordon Friedrichs (New York: Routledge, 2022): 56-70.