Trade Cases
Leibowitz: US-China Relations; De-risking or Decoupling?
Written by Lewis Leibowitz
July 9, 2023
US-China relations have been in the news for at least the last five years. Cabinet officials are traveling to China, Chinese leaders are coming to the US, books are coming out and the European Union is dealing with the same quandary: should China be further isolated? Is the West too dependent on China?
As I write this, Treasury Secretary Janet Yellen is in Beijing meeting with Chinese senior officials and US businesses with operations in China. Last month, Secretary of State Antony Blinken was doing the same thing.
In May, Secretary of Commerce Gina Raimondo met with her Chinese counterpart Wang Wentao in Washington to discuss the trade and economic rivalry.
The mission of all these visits is to keep dialog going—as Churchill famously said: “Jaw, jaw is better than war, war.” Both countries are interested in keeping relations from veering into dangerous territory. China and the US are rivals in economics and geopolitics. If we don’t talk, things are likely to get worse. And it is a dramatic understatement to say that open conflict would not be pleasant.
On the other hand (there is always an “other hand,” it seems), many in the public in the US are not content to see China increasing its influence around the world and trading in violation of accepted rules. Of course, the US violates those rules too; and China is only too willing to point those violations out. The nature of the relationship is ripe for change—but not conflict.
In Europe, a similar process is at work. The European Union is debating internally whether to “decouple” from China or, more moderately, “de-risk” China. Definitions of those terms are difficult to pin down, but de-risking sounds less ominous than decoupling. Members of the EU are debating this issue; but while the debate goes on, events continue to happen.
The G7 meeting in June in Hiroshima issued a communique favoring “de-risking” rather than “decoupling.” But, as the Asia Times and others have pointed out, even decoupling does not mean a total break with China. Rather than that, governments and private companies are looking at supply constraints as a problem that can be made more reliable by relying less on China. That means developing alternatives.
In his recent book, former US Trade Representative Robert Lighthizer advocated more decoupling—a goal to make China considerably less important to the US economically and geopolitically. He believes that ending the considerable interdependence between China and the US will lead to a weakening of China.
I for one am not convinced by that logic. Disengagement between China and the US will force both countries to seek alternatives that are not as useful to them as what we have now. De-risking, if it means preparing for the next major disruption, calls for continued interdependence but alternatives in case the current supply chains fail, as they did during the Covid pandemic and its aftermath.
It is perhaps indelicate, but both countries are looking for opportunities to prevent war. There are powder kegs that can ignite in many areas—Taiwan, of course, is one. The Ukraine War is another. Chinese investment and activities in Latin America, the vast increase of Chinese naval power in the South China Sea and elsewhere, and its initiatives to increase economic ties with Asia and Africa are all issues that need to be considered.
And, for many, China’s record regarding human rights (Hong Kong, Uighur Muslims in Xinxiang Province are only two examples) is also an irritant. China has complaints too. Global institutions have proven unable to address these issues, in large part because the US has turned away from those institutions.
Nor can we easily or quickly end our interdependence with China. Again, to raise an issue that may seem indelicate, China is the largest holder of US debt in the world. China has a vital economic stake in the United States. The US is no less dependent on China, which is its largest creditor in a situation where our country will need to borrow for the foreseeable future. We must find ways to live with that reality.
The Cold War was a different situation. There, the Soviet Union chose to forgo economic aid after World War II, and the West and East never became interdependent. Here, we chose, after the opening of China, to integrate economically with China in the belief that political moderation would follow economic interdependence. That has not worked out as we had hoped. Now, we have the choice between degrees of separation. But it does not seem realistic to separate totally at this point.
War, whether military or economic, would be a disaster for both countries; but that does not mean that military conflict is so horrible that it cannot happen through miscalculation. We should read up on “The Guns of August” to remind ourselves of the cost of miscalculation.
This year the US has increased its diplomatic approaches to China, not to concede on major points, but to engage in conversation. The current talks basically involve airing grievances with each other. No major agreements are expected from the Yellen visit, just as the Raimondo and Blinken meetings earlier this year; but increased communication could lead to negotiations on substantive issues. Maybe at least some disputes could be resolved or narrowed.
Talking seriously about the many disputes could make it less likely that major fights will break out. But the perpetual discussions must lead somewhere. Time will run out on “jaw, jaw” eventually. We can only hope that the people in charge realize that and come up with a plan to move from talk to action.
Lewis Leibowitz
The Law Office of Lewis E. Leibowitz
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Lewis Leibowitz
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