A growing number of lawmakers and policy experts are pressing to drastically reduce open trade with China, especially in technology. This so-called decoupling movement has adherents in both political parties.
But backers of this 180-degree reversal in global integration want to go too far. Fortunately, there’s time enough to slow and alter the course of this movement before businesses and consumers are further impacted by higher prices and reduced choices. The Biden administration should be congratulated for trying to tap the brakes.
Antagonism between the U.S. and China is not new, of course. China has long been the U.S.’s top commercial rival, a competition that has escalated as China’s economy and military strength has grown to threaten American superiority. Nationalistic feelings in the U.S., exacerbated by economic uncertainty in the wake of the pandemic, have sharpened America’s anti-China sentiment on trade issues.
Jon Bateman, a senior fellow in the Technology and International Affairs Program at the Carnegie Endowment for International Peace, has written in Politico Magazine that selective technological decoupling could “help to preserve America’s military edge, protect key U.S. industries from unfair competition, and push back on Beijing’s human rights abuses.” But he also warns that the policy, if taken too far, could backfire, hurting the economies of the U.S. and its allies and undercutting the fragile international cooperation that has prevented military conflicts between the superpowers and mitigated global threats such as climate change.
The answer is for the U.S. to pursue a balanced approach, especially in technology trade.
The everchanging realities of global trade will make it difficult for the U.S. to reach the desired balance. Almost every month, the U.S. government announces new export controls and sanctions on Chinese companies, creating a steady stream of shifting rules for U.S. businesses. These revised export controls, combined with public statements by members of Congress, contribute to an emerging U.S. vs. China Cold War.
But China's significance to the U.S. economy, and indeed to the global economy, cannot be understated. The U.S. is China’s top export destination. China and the U.S. are especially interconnected in technology. The U.S. buys a lot of high-tech gear from China, while China buys a lot of its semiconductors, semiconductor manufacturing equipment, and software from the U.S.
Apple CEO Tim Cook referred to the relationship between Apple and China as a "symbiotic kind of relationship." Elon Musk's recent visit to China highlighted the country's importance for Tesla. China accounts for 50% of Tesla’s vehicle sales and 20% of its production capacity, according to CNBC.
Big business organizations in the U.S., such as the U.S. Chamber of Commerce, regularly speak publicly about the need to keep trade flowing. Chinese executives also are urging U.S. companies doing business in China to stay there and to grow.
In its recent report, Understanding U.S.-China Decoupling, the U.S. Chamber said, “Trying to decouple this extensive relationship overnight would lead to counterproductive economic hardship.” Former Goldman Sachs CEO and ex-Secretary of the U.S. Treasury Henry Paulson, said that decoupling will “hurt Americans more than the Chinese people.”
Take the semiconductor industry as an example. The combined efforts of firms in major countries are needed to meet the fast-rising needs of our technology-dependent world. That view is widely shared by entrepreneurs in China, including by Zhu Yiming, founder of the China-based semiconductor maker CXMT. “Global collaborations have been one of the most important factors to be a successful semiconductor industry,” he said. “There is not a single nation in the world that can run the entire supply chain alone.”
The U.S. government must protect its national security interests, but it also should consider the impact on export revenues that drive American innovation and economic leadership. In last year’s National Defense Authorization Act, Congress targeted Chinese memory chips used in everyday consumer electronics. Since these chips have no military application, Congress might want to reconsider the language to ease the burden on U.S. businesses and the global supply chain.
The decoupling of U.S.-China trade, especially technology trade, has captured the popular imagination of some Washington’s policy makers. But while rhetorically satisfying and politically useful, that rhetoric if taken too far would harm the people who espouse it.
Gregory Tosi, a former congressional aide, is an attorney practicing international trade law in developing countries.