China is a central diplomatic issue in the 2020 U.S. election. Incumbent President Trump and Democratic challenger Biden have attacked each other’s track record with China.
Trump slammed his opponent for being soft on China, saying that “China will own America” if Biden wins. Biden criticized Trump’s close ties with “rogue” leaders in China and other countries.
The two US presidential candidates have said that if they take office, they will adopt a tough policy towards China.
In the past three years of Trump’s administration, “decoupling” has gradually become a key word in U.S.-China relations. After the U.S. election, what will be the trend of decoupling between the U.S. and China? Does the US have any other option than to decouple from China?
The BBC’s Chinese correspondent in North America, Zhaoyin Feng, recently interviewed Scott Kennedy, senior advisor on China’s economy at the Center for Strategic and International Studies (CSIS), an American think tank.
90 to 95 minutes of tightly hooked U.S.-China relations
BBC: “Decoupling” has become a hot word in US-China relations lately, what does it mean in your opinion?
GANSTEIN: Decoupling means reducing the interdependence of the two countries. It was originally an idea that came from China, not the United States. People were concerned that dependence on China for markets, technology, capital, etc. posed an economic and national security threat to the United States. They thus argued that when the threat posed by interdependence rises, the best way to deal with it is to decouple and reduce ties. Over the past two years, this view has gained increasing attention.
BBC: What is the current status of decoupling between the US and China? Is it a full decoupling, or are there also areas where the link is getting tighter?
GANSTEIN: It’s an interesting situation. Because of the epidemic, the two countries are not as closely connected as they used to be. I haven’t experienced jet lag in a long time, and my Chinese friends haven’t traveled to the U.S. in a while. Of course, in the high-tech sector, people are familiar with the U.S. restrictions on Huawei’s ability to buy U.S. technology and market access. But on a macro level, if a fully hooked-up U.S.-China relationship is a 100, we’re probably in the 90s to 95s today. In some areas, we’re actually closer than we’ve ever been, such as in finance. The capital of Chinese companies listed on the New York Stock Exchange and the NASDAQ has doubled from last year. So, in some areas, we’ve set more restrictions, yet in some areas, we’ve become more connected.
What is becoming clearer is that there is a growing recognition across the United States that threats are part of a bilateral relationship that must be managed. CSIS just conducted a survey of opinion leaders in the United States, Europe, Asia, and the American public. It’s interesting that less than 20 percent of the respondents thought full decoupling was a good idea. But under each category, especially the public, there was a high percentage of respondents who thought it would be worthwhile to put limits on Huawei or other Chinese companies. No one really favors full decoupling, and the decoupling they support is small-scale.
Since the Trump administration launched its trade war and employed other actions, U.S.-China trade has largely remained at 2017 levels, with declines in some areas. China has diversified its export markets and the U.S. has diversified its import sources, but despite the tariffs, the volume of trade between the two countries remains relatively high. Meanwhile, much of the commercial, high-tech trade and investment remains in place. The biggest change is that no one travels between the two countries anymore. The number of Chinese studying on U.S. college campuses has declined, and travel exchanges are now significantly reduced for security reasons. In the financial context, we are still in a global economy. So what has changed is people’s expectations for the future.
Some supply chains and business relationships are highly sticky and difficult to change. Some people say, let’s move all the companies from China to Vietnam or India. But you can’t just snap your fingers and do that. China has a lot of infrastructure to support these companies and their production, which is not available in many other places. And some companies are interlocking, you can’t just move one, a move to move the whole industry. That’s a real challenge.
But I do think that the level of decoupling that may be achieved in the future, despite the current limited level of decoupling, is quite high. People say the U.S. and China are in a battle of institutions. If the two institutions can’t find a way to work with each other and speak a common language that is acceptable to both sides, I think we’re going to experience a much more significant decoupling.
BBC: What would a complete decoupling look like? How will it affect our lives?
GANSTEIN: The U.S. and Chinese economies are highly interconnected. Obviously, there are a lot of products made in China, but that’s only part of it, and there’s a lot of innovation and research behind those products. A lot of Chinese people go on to study at American universities or work in American companies, and American companies have hundreds of thousands of employees in China. Some of Microsoft’s most successful AI projects have been developed in labs in China, helped by many Chinese-born and educated scientists. So decoupling will be very difficult in these areas.
However, even though decoupling in these areas will take a long time to happen, I don’t think it’s a total impossibility. Because when national security and economic issues are at odds, the choice in Washington is obvious.
The same is true in Beijing, where China has all sorts of restrictions on American companies in the cloud computing and social media industries, and even on the BBC. In some areas, I’ve never seen China “take the bait”. In Shenzhen, one of China’s earliest cities to open up, Xi Jinping recently gave a speech in which he said China needed to be self-reliant, especially in the high-tech sector. The rising nationalism in both countries could lead to further decoupling.
In theory, the U.S. and China could break away completely, with limited bilateral trade, essentially creating an international economy with two separate branches. But what I think is more likely is a fragmentation (of the international economy). Because of the heightened tensions in the U.S. and China, it’s possible that we’ll see a decline in global trade and investment, followed by a huge disagreement about the rules of the game, and then a decline in the importance of multilateral organizations like the World Trade Organization (WTO) and a greater emphasis on unilateralism. That would be a very different world from the one we live in today.
The world needs to choose sides.
BBC: The United States and China are the world’s two largest economies, how will decoupling them affect the rest of the world?
GANSTEIN: The decoupling of the U.S. from China will have a cascade of effects, which could be a boon for certain factories and companies that could become production locations replacing China. If you move your supply chain system to a regional center, multiple locations could benefit. But in high tech, if you have a product or service that has a dual use for good or bad, you may be forced to pick sides and do business only with China or only with the US. Or maybe we have to build excellent firewalls on both sides of the border so that the two sides of the business are completely independent, or we have to find a system that satisfies both sides of the border. This situation would put many countries, companies, students, and employees in a dilemma.
BBC: The United Nations Secretary-General recently warned of this trend, saying that the world risks being split into two parts. How serious are the consequences of that?
GANSTER: The United States and China are very different political, economic and social systems. After the collapse of the Soviet Union, people once thought there would be an immediate struggle between the United States and China, but there wasn’t. One of the reasons is that the two countries are now connected in a way that the Soviet Union and the United States were not. Hundreds of thousands of Chinese are now studying, traveling, and investing in the United States. It’s not about turning China into a free market democracy, it’s about building a system that can integrate with the West and make a lot of reforms.
These common interests that we’ve developed have cushioned our huge political differences, such as our views on Taiwan. So if we decouple and reduce our relevance, that reduces our common interests and is a buffer against our political conflicts. That’s not just important for the United States and China.
Taiwan, for example, sells 40 percent of its exports to China, millions of Taiwanese live in China, there’s a lot of trade and investment between the two places, and China is very dependent on Taiwan’s technology, especially in information and communications technology. It is hard to imagine them being economically isolated from each other for the next decade. This is obviously not the only thing preventing a dispute from erupting between Taiwan and China. But if the cost of the dispute is dramatically reduced at the economic and social level, then the likelihood of war rises. I believe that global connectedness increases the cost of war and helps reduce the likelihood of disputes. Of course, by decoupling we can begin to address other national security issues, such as no more leaks of technology and so on. It’s a process of weighing the pros and cons, with trade-offs.
Who will be the winner in the US and China?
BBC: In your opinion, if the US and China decouple further from each other in trade and technology, who will be the winner?
GANSTEIN: Overall, I think the U.S. has the edge in terms of technology and economic competition. However, I think that even though it’s a competition, the final score will be lower. Both sides will suffer, although the U.S. may be relatively better off. We have to remember that this is a global economy, not just two countries. And the goal of economic development is not to beat each other two to one, but to improve the overall score. If the score isn’t high, it means the economy is stagnant, it’s not creating jobs, it’s not providing health care, it’s not addressing public health issues like epidemics and climate change. So we want to find a way to interact with China that protects our national security and also improves our economic score. The challenge is whether we can manage the tensions between the two systems and at the same time try to get what we want.
BBC: Washington seems to have led multiple recent rounds of decoupling, but China has made numerous moves against decoupling over the past few decades. Which of the two countries’ moves have led to the status quo?
GANSKY: China has always been suspicious of opening up to the outside world, like opening a door but putting up a screen so that the flies of globalization, the vermin, the mental pollution, don’t get in. China has never been 100 percent completely open, they’ve become a much more developed economy, and since Xi Jinping came to power, China has imposed new restrictions and rules on social media, cloud computing and all sorts of other areas of technology.
In many areas of business in China, if you want to do business, you have to accept joint ventures. It’s an important defense mechanism to protect the Chinese economy, as well as the protection of state-owned enterprises. China, where the concept of decoupling originated, came up with the idea after joining the World Trade Organization, because they were concerned that China would be dominated by the dollar-dominated world. Decoupling was initially around the dollar, but more recently has focused on technology, which has been talked about in China for a long time.
The US imported the term around the beginning of 2019 and it is now well known, in line with the rise of nationalism in the US. U.S. misgivings about globalization, fears about manufacturing and job loss, and the U.S.-China dispute and some statements from China have brought us to where we are today.
BBC: Does the U.S. have an alternative to complete decoupling from China?
GAMSTER: First of all, the United States clearly needs self-defense measures in the face of China’s unfair competitive practices, whether it’s intellectual property theft or subsidies for state-owned enterprises. We need measures that worry about national security, measures that require export restrictions and investment restrictions. But they must be targeted, very precisely, at the most important technologies and dual-use technologies. We also need a mechanism to certify the services and technical qualifications of global companies to see if they can be trusted and included in our ecosystem. We already have some such mechanisms, but most of them are unilateralist, not global.
We also need to diversify our supply chain. We don’t need to pull out of China, but we need to reduce our dependence on China as a supplier and market.
At the same time, we need to be prepared for emergencies. If we have a crisis, such as an ongoing epidemic, we need to have sufficient supplies of protective gear and medicines without having to ramp up production on the other side of the world.
We also need corporate mechanisms to help keep us safe when we do business with Chinese companies. TikTok, for example, is now negotiating a solution in partnership with Oracle, with Wal-Mart as an investor. So much so that the U.S. also owns a share of the company, or can have some level of operational control, access to source code, decide where to store data, and ensure that there is no content censorship. This could be a potential model for other Chinese companies to be able to do business in the U.S. or the West. It’s similar to the Chinese joint venture model. We can explore how these two very different systems could be integrated.
On top of that, the U.S. should invest more in research and innovation and continue to lead in all areas of technology. And to get those technologies to market, especially in some of the communities that are disadvantaged, there is a huge digital divide in the U.S. today. Every single day, someone has difficulty working or studying from home because they can’t afford broadband Internet access or the Internet simply doesn’t reach them in their area. We need to invest more in all kinds of technology and make sure that more Americans have access to it. And I think that’s going to help the United States stay on the leading edge of technology, not just vis-à-vis China, but vis-à-vis every country.
U.S.-China Relations After the U.S. Election
BBC: How worried are you that many observers believe US-China relations are at an all-time low? How will bilateral relations develop after the US election?
GAMSTER: I am very concerned about the trends in the U.S.-China relationship. I’m concerned about the current state of affairs in both countries, and these circumstances play into the bilateral relationship. Both countries are moving in a highly nationalistic direction, and there is a lot of internal division and conflict. In the last few years, authoritarianism in China has reached a whole new level, not only in Xinjiang and Hong Kong, but in the entire country. In the United States, we can’t even agree on the status quo. I think that makes it difficult for the two countries to find common ground, and when one side takes measures to defend itself, the other side does the same in return.
Whether it’s Trump’s second term or Biden’s first term starting next January, the challenge is how they find some kind of balance with China, whether there can be some cooperation, even if the bilateral relationship is largely competitive.
I think the U.S. has the ability to self-correct, through campaigns, changes at the local level, civil society. I think the U.S. will make some kind of change in its approach and strategy to try to solve its own problems and deal with China.
My biggest concern is, what’s going to happen in China? Will Xi Jinping’s government be willing to take a chance, make the necessary adjustments and compromises to try to find a way for us to coexist peacefully? That’s not what they’re doing so far. They say they want to work together, and the responsibility (for the deteriorating relationship) is 100% on the American side. That’s not going to get us to move forward. Will they be willing to change? If they want to, I think we still have a chance to solve the problem.
At this point, I think both sides are finding it very difficult to make changes. We may have to be prepared for tensions to continue for some time. It’s not what I would like, but it’s the most likely scenario.
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