Could the US and Chinese economies really 'decouple'?
  • Vote Up0Vote Down venynxvenynx
    Posts: 4,525Member
    Talk of a new cold war is everywhere. Yet the economic context of the
    confrontation between the US and China is fundamentally different from
    the days of the iron curtain. The US and the Soviet Union had created
    competing globalisations, dividing the world into separate economic
    blocs. The two sides of the present divide are tied together as one
    “Chimerica” – with China as the global “workshop” and the US as the tech
    “headquarters” of the world. The old hope that this economic
    interdependence would prevent political conflict has been shattered.
    Instead, deep economic integration has increased the stakes: the core of
    the world economy could fall apart.To get more latest china economy news, you can visit shine news official website.



    Today’s global economic order is still inscribed on the back of every
    iPhone: designed in California, assembled in China. Both parties in the
    race for the US presidency pledge to put an end to this arrangement. The
    promise, this time on both sides, is to bring manufacturing home.
    President Trump’s campaign proclaims that it will “end our reliance on
    China”. Joe Biden for his part is trying to out-hawk Trump and promises a
    future of “Made in America”.



    Meanwhile, Xi Jinping proclaims “dual circulation” as China’s new
    economic strategy, which promises more focus on the domestic sphere
    rather than reliance on the rest of the world. It is true that one part
    of this dual approach is to signal that China’s door remains open. Xi
    has personally written to the CEOs of foreign firms assuring them of a
    favourable business environment. The Chinese government has announced
    plans to transform Hainan island into a gigantic free trade port and
    China has opened its financial and insurance markets at a pace that
    international fund managers had not dared to hope for. On the other
    hand, China is preparing for a falling-out with the US, emphasising the
    goal of self-reliance in critical sectors such as food and technology.



    “Decoupling” has become the new buzzword to describe the possibility of
    an economic break-up between the US and China. Trump, too, has recently
    added it to his rhetorical arsenal. Decoupling makes it sound as if the
    disintegration of the world’s two largest economies could be done in one
    simple step – like disconnecting the coupling between two wagons of a
    train. This couldn’t be further from the truth.



    In 2012, Barack Obama asked Steve Jobs whether the iPhone could be
    produced in the US. Jobs answered with a plain no, and the difficulties
    likely remain in place today. Chinese government institutions, local
    business partners and multinational corporations have built supply
    chains in China since the late 1980s. Production sites are sustained by
    gigantic infrastructure developments, and draw from China’s roughly 300
    million migrant workers, many of whom live in dormitories at the edge of
    the assembly line.



    When we talk about “decoupling” from China what we really mean is a
    complete reorganisation of a large chunk of the world’s production. As a
    result of the trade war, China’s share in global supply chains in
    computers and tablets – the most affected sector – shrank by about 4
    percentage points. Still, China produces 45% of global exports in this
    sector, and 54% of all phones worldwide. For furniture, clothing and
    household electrical goods, the shares are 34%, 28% and 42%
    respectively.



    To the extent that foreign businesses have tried to pull their
    production out of China, reports tell a worrisome tale for the prospects
    of a quick decoupling. Foxconn is relocating some of its production to
    Vietnam and India, yet about 70% is bound to remain in China. Even when
    aided by China’s unique capability in rapid infrastructure development,
    moving major production facilities around takes time. A previous
    relocation of Foxconn’s factories within China to the inland city of
    Zhengzhou was several years in the making. As a result of the massive
    costs involved, the business community is in fact largely reluctant to
    follow politicians’ calls to pull out of China.



    While the world remains dependent on China’s manufacturing
    infrastructure, China cannot do without foreign technology. In the
    critical computer chips industry, China is still years behind the
    industry leaders and remains tied to US knowhow. Thus, recent sanctions
    that cut Huawei off US-made chips have been billed a “death sentence”
    for China’s most successful tech company. And although China’s Covid-19
    stimulus package is focused on long-term, high-quality development and
    targeted at innovation, the country faces a major uphill battle on the
    technological frontier. “If the US further hit key areas of the Chinese
    tech industry,” a Chinese executive warns, “the impact would be
    devastating.”

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