Demystifying Sino-U.S. Decoupling

Thursday, July 11, 2019
Image credit: 
Poster Collection, US 3478, Hoover Institution Archives.

Image credit: 
Poster Collection, US 3478, Hoover Institution Archives.

“He’s a New York real estate developer,” a non-politically involved acquaintance argues, explaining that President Donald Trump knows that any deal as complex as the one he is trying to negotiate with China over trade will take time, “even years.” That explanation may be as valid as any of the ostensibly more informed takes by professional policy watchers. It also is a useful caution against placing artificial, media-driven timetables on what is turning into the most significant policy showdown between Washington and Beijing since the normalization of diplomatic ties forty years ago.

Negotiations between American and Chinese officials are a drawn-out affair because Trump has zeroed in on a problem a generation in the making. At one level, Trump’s trade war is upending four decades of unequal U.S.-China economic relations that have helped fuel China’s modernization in the post-Mao Zedong era. Given that, at least since the death of Mao, the Chinese Communist Party (CCP) has based its legitimacy on Chinese economic development, any threat to continued growth carries political implications that cut to the heart of CCP rule. It is hard to think of any other issue that has the potential to undermine the CCP’s overall national strategy.

At a higher level, the trade war is over the soul of the global trade regime, with Trump acting on his election-trail promises to reconstruct the international economic architecture that he believes has devastated the American heartland. With the world’s two largest economies sparring over trade, whatever agreement they come up with will have repercussions across the globe. Hence, Xi Jinping’s claim to the World Economic Forum at Davos in January 2017 that China was the new guardian of free trade and the international order.

What Beijing really fears is the decoupling of the U.S. and China, on both the economic and political fronts. Chinese scholars and officials claim that Trump’s real goal is to contain and weaken China by crippling its economy. Tariffs that lead to lowered exports and a decoupling that sees supply chains and manufacturing shift away from China is the CCP’s great fear. While it is hard to imagine a complete decoupling, given the interconnected nature of global supply and production, economic figures already show some manufacturing moving out of China in response to higher costs, which is something that has been brewing for years, given the maturation of the Chinese economy. Yet Beijing believes that Trump is attempting to accelerate this process, even if it means imposing pain on domestic U.S. producers.

Such economic decoupling means greater isolation, to Chinese officials. While they have opened up a new geo-economic front with the One Belt One Road initiative to link Eurasia to China, the specter of China and America drifting apart is, perhaps counterintuitively, of great fear to the CCP. Much of Chinese strategy since 1979 was to keep the United States as close as possible, giving it an “ownership stake” in China’s success, whether economic or political. Washington obliged by fully integrating Beijing into the global system, whether at the United Nations and World Trade Organization, or through high-level Sino-U.S. diplomatic exchanges. While the American goal was to get Beijing to buy into what is termed the “rules-based international order,” the Chinese saw it as a way to circumvent pressure Washington might put on Beijing’s foreign and even domestic policies, while abetting the CCP’s goals of rapidly modernizing China’s economy.

Hence, the worry in Beijing that, as it faces a naturally slowing economy, as it responds to increased domestic unrest whether in Xinjiang or Wuhan, and as it looks out at a more activist Japan and India, that it now also faces a political decoupling from the United States that will result in less favorable U.S. policies. The Trump Administration’s push against Huawei, moderately blunted but not repealed; its increased activity in the South China Sea; and its pushback against endemic Chinese cyber espionage and attacks, all add up for Beijing to a period of intensified Sino-U.S. competition.

The current trade tensions are thus both a major issue on their own, as well as part of a much larger reordering of Sino-U.S. relations. The current disequilibrium is likely to continue regardless of whether Trump comes to an agreement with Chinese President Xi Jinping over trade or is defeated in re-election in 2020. Large segments of both U.S. political parties are dissatisfied with relations with China and are demanding change. The bitter trade dispute has already developed a feedback mechanism into diplomatic relations, increasing tensions and resulting in greater jockeying for position around Asia. Above all, Chinese officials and scholars are warning that Trump’s protectionism and a war of civilizations risk major conflict. In attempting preemptively to place blame on the White House for destabilizing the world, Beijing is signaling the degree to which it fears that today’s tensions will lead to a weaker, poorer, and more isolated China.