DECOUPLING OF UNITED STATES AND CHINA ECONOMIES?

The South China Morning Post on November 30, 2018, published an article on a book by Stewart Paterson (”China, Trade and Power”) in which the decoupling of US and Chinese economies is described as ”inevitable”. For excerpts see below:

…the US should pursue an Anglophonic alliance to soften the blow, the author said…

The speed and extent of the decoupling will depend on negotiations between the world’s two superpowers, but it is already under way, with the shifting of US companies’ supply chains out of China and into other, cheaper Asian manufacturing hubs.

Stewart Paterson, a partner at fund management company Tiburon Partners…said that.. future trading blocs could be based on ideology and could be similar in structure to the Five Eyes security grouping, an intelligence alliance consisting of Australia, Canada, New Zealand the UK and US, formed after the Second World War.

“I think an element of decoupling is inevitable,” Paterson said at the book’s launch in Hong Kong. “What is fairly certain is that the [Chinese Communist Party] is not prepared to give up control of the commanding heights of the Chinese economy. When you read [US Trade Representative Robert] Lighthizer’s criticisms of China, going back a decade at least, he would take a view that I would share, that a trade economy like this produces unfair outcomes,” he said.

Decoupling would involve disentangling complex supply chains established over many years. Most of these were set up after China’s accession to the World Trade Organisation (WTO) in 2001 and opened the floodgates for Western companies to establish low-cost manufacturing bases there.

Research from US-based firm Rhodium Group shows that US companies invested US$256.49 billion in China between 1990 and 2017.

Over the same period, Chinese companies invested US$139.81 billion in the US. However, this was largely through acquiring US firms.
Thanks in part to foreign investment, China subsequently became the “world’s factory”, but in recent years has lost some of its competitive advantage to emerging neighbours such as Vietnam and Malaysia.

There are also signs that other Western economies are starting to question their relationship with China. New Zealand has become the latest nation to freeze Chinese tech giant Huawei out of its plans to roll out a 5G internet network. This follows a decision by the Australian government to bar Huawei from bidding for similar work in Australia.

Paterson’s book argues that China’s rise has come at the expense of Western economies and societies and was facilitated by the governments of the time, notably the Clinton administration in the US.

Paterson said that the only two winners from China’s accession were “the [Chinese Communist Party] and the 1 per cent [wealthiest] in the West”. The US’ “naive” pursuit of low inflation at the same time led to lower wages and poorer societies, “stimulating the Chinese economy by taking on greater levels of debt” while “China got everything it wanted”.

“The Chinese have been surprised by it and wrong-footed by it, but America needs to do some relationship building around the world to ensure they’re not isolated. The good news for the US at this juncture is that China’s Belt and Road Initiative has alienated a lot of people. The Europeans have similar complaints to the US in terms of [intellectual property] theft, lack of market access and lack of reciprocity. It should be possible to build a global alliance to support this.”

“Whether or not a recession is avoidable in any circumstances, I don’t know. It might well not be,” Paterson said. “My point would be if the choice is between a continuation of the status quo or a recession but by standing up to China liberalism survives, I would go for that option.”

Comment: President Trump may be engaged in an endless trade war with China, according to Republican Senator Marco Rubio. The rivalry between the United States and China is intensifying. Another problem is China’s human rights abuses. A crackdown by the Chinese regime on Hongkong could further complicate the relations.

A vital question now is if the two largest economies in the world should decouple.

Robert Spalding, a retired Air Force general who helped craft the Trump administration’s official National Security Strategy, has noted that if the US cuts off China it will cause the regime in that country to stagnate. CCP will then loose the favor of the population.

President Trump is using tariffs and demands for American companies to leave China to gain leverage in the trade negotiations. Senator Rubio thinks the United States needs “to be more protective of” numerous industries that are targets for Chinese espionage

China’s intellectual property theft is catastrophic when it deals with industries that are critical to American and Western future for example rare earth minerals, telecommunications, quantum computing, and in other fields.

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