US Doesn’t Need to Break Up With China

Tuesday, 19 November, 2019 - 15:00 Issue Number [14966]

The greatest challenge the US faces today is competing against a country and economy -- China -- with which it’s more entwined than any previous rival. A growing chorus in Washington, D.C. argues that the US would be better off extricating itself from the relationship entirely. While Vice President Mike Pence recently declared that such a decoupling was not official policy, when it comes to China, the administration seems to have adopted a “better safe than sorry” attitude, limiting ties wherever they seem risky.

Whether intended or not, this approach is propelling the US and China toward a precipitous breakup, with little appreciation of the costs involved or a clear sense of what would constitute success. Such an outcome would leave the US poorer and weaken rather than strengthen our national security. We desperately need a smarter framework to guide China policy.

Decoupling may be superficially attractive, but it’s built on three myths. First, the US and China are not connected like a plug and socket, where the only two choices are full integration or complete autarky. In fact, ties fall along a spectrum. The level of integration varies dramatically across every sector of the economic and financial relationship.

Second, advocates of decoupling somehow believe the US government can control the process while everyone else plays a passive role. In reality, while Washington can create limits and disincentives to integration, companies and other governments, including China’s, still determine what actually happens.

When US President Donald Trump tweeted, “our great American companies are hereby ordered to immediately start looking for an alternative to China,” US executives mostly shrugged and continued about their business. Some have moved a portion of production meant for global markets out of China, but simultaneously increased investment aimed at the China market. Despite new export controls, many US companies are still selling microchips to Chinese telecom giant Huawei Technologies Co. Ltd. through their overseas affiliates.

Meanwhile, China has courted other countries by offering greater -- albeit selective -- market access, while putting up new barriers for US companies and tripling down on its efforts to gain technological independence. A unilateral American attempt to decouple could very well leave the US, not China, isolated.

Third, the logic of decoupling assumes that greater connectivity with China inherently threatens America’s security; therefore the policy prescription is the opposite -- to roll back integration. In truth, stronger ties do expand some vulnerabilities, particularly in the cyber realm. But they’ve also bolstered US security by integrating China into international institutions, making it dependent on Western technology and markets, and increasing profits for American companies. That money funds greater R&D, which in turn strengthens the foundations of US military power.

The alternative to decoupling isn’t blind naivete about China. It’s to adopt a more judicious approach to integration, one that remains optimistic about its benefits and confident in the strengths of the American system and its capacity for innovation.

This approach will require great effort to ensure that engagement with China is economically fair, strengthens US security and aligns with American values. Yet by putting the emphasis on integration, not separation, it increases the chances that the US can effectively cooperate with other like-minded governments, industry and other stakeholders, and thus more effectively compete with China.

A shift in focus from decoupling to what we call “managed interdependence” with China involves a change in perspective as much as anything else. For example, export controls and investment restrictions will still be needed to make continued commerce more strategically viable. But that should be their goal; such measures needn’t be a pit-stop on the way to full-scale de-linkage.

Similarly, while the US needs to create robust mechanisms to monitor research funding that goes to Chinese scientists and scholars, the purpose should be to enhance the integrity of transnational research, not to cut China off entirely. Having business operate in ways that align with American values doesn’t mean abandoning China outright but having companies better scrutinize their supply chains to ensure they are not sourcing products or using labor that is part of the Chinese government’s network of detention facilities in Xinjiang province.

One of the benefits of this approach is to eliminate the conventional distinction between engagement as a tool of economic growth on the one hand and protecting national security on the other. Yes, the US will need to continue to deter China from using force against Taiwan and do more to push back in the South China Sea. But the US -- and the West more generally -- needs to integrate concerns of security and values into every aspect of how we engage China. Otherwise, the relationship will have little chance of being sustainable.

A more holistic conception of interdependence and engagement will redound not only to economic ties, but to other elements of the relationship. If the US continues to react as defensively as it’s doing now, some sort of decoupling is almost inevitable. If it takes the initiative to establish a new equilibrium, though, a smaller relationship could be a stronger one.

(Bloomberg)