Iuri Nascimento Santiago e Vitória Guedes
1. Introduction.
The concept of “Decoupling” means the segregation between two or more aspects, and can be applied to various contexts when it comes to the International Scenario. As an example, according to Retorno (2021), in the economic-environmental context this concept refers to the capacity a said nation has to separate its economic growth from the ambiental impacts caused by them, in a way its economy can still thrive. But when it comes to two nations, on a global scale, such as the United States of America and China, it means the gradual separation of both economies (CAIXABANK, 2024).
So, with the growth of Chinese influence, a trade war between the two largest powers on the planet is no surprise. On one hand, a country that traditionally holds a strong hegemony, conquered with the end of World War II, and maintained to this day. On the other hand, an emerging country that gains more and more space on the International Scene, threatening American supremacy. In this sense, with China's rise, the country then sees no reason to keep the relationship with the U.S the same way it has been since 1971 (CAIXABANK, 2024).
2. United States and China’s Relationship Timeline.
The relation between China and the United States is one of the most influential and complex of the 21st century, characterized by growing economic interdependence and geopolitical tensions. According to Carvalho and Catermol (2009), since the end of the Cold War, the two countries have become crucial trade partners, yet China’s economic growth, along with its pursuit of a leadership role in the International System, has created challenges for the U.S in various spheres, including technology, security, and global influence. This dynamic generates a constant tension between cooperation and rivalry, reflecting the deep interconnections and divergences between the two powers (CARVALHO; CATERMOL, 2009).
Historically, the rupture of relations between China and the Soviet Union in the 1960s was responsible for beginning the bilateral connection between China and the USA, established with the country's entry into the United Nations in 1971. But, it was only in 1979, two years after the death of Mao Tse Tung, that the bond was officially formalized (CARVALHO; CATERMOL 2009). Both countries feared the advance of the USSR, and the sense of insecurity in the current international system was a key factor for their rapprochement. Also, the US faced multiple economic crises as a result of the break of Bretton Woods — treaty responsible for establishing a new monetary system back in the 1940s (IPEA, 2009) — the defeat of the country in the Vietnam War and the rise of the oil prices, the world's main energy resource (CARVALHO; CATERMOL, 2009). In this context, after not recognizing the legitimacy of the new communist Chinese regime, the U.S saw the reapproximation with China as a move that could weaken the influence and dominance of the Soviet Union. Furthermore, according to Carvalho and Catermol (2009), the said relation can be described as great American extern investment and great Chinese exportation to the USA.
3. Commercial Tensions: American Protectionism and China’s Separation.
As mentioned previously, even though being great rivals, both economies need each other strongly (CNN, 2023). Since 2000, China has been investing greatly in the American Treasury, representing an important role in sustaining the American economy. Meanwhile, the U.S. imports a significant portion of Chinese goods, creating an ironic situation in which relying on its biggest economic rival not only strengthens their power but also guarantees the prosperity of its own economy (POLITIZE, 2019). Hence, fearing the loss of its position as the most influential nation, the U.S. constantly seeks to hinder China's advancement through tariffs, increased taxes, and by portraying China as an unfair partner due to the ongoing technological rivalry between the two countries, resulting in a full-fledged trade war (POLITIZE, 2019).
When it comes to the American security concerns, Bittencourt, Costa Lima and Costa (2021) say that the matter has increasingly shaped U.S. policy towards China, leading to a rise in protectionism and competition in technology. As the U.S. perceives China as a strategic rival, it has implemented measures to safeguard sensitive industries and intellectual property. This includes restricting access to advanced technologies, through economic sanctions and trade embargos on Chinese companies that are considered a threat to national security or that may use advanced technologies for espionage purposes. Protectionist policies, such as tariffs on Chinese imports, aim to reinforce domestic industries while reducing reliance on Chinese production. This dynamic reflects another effort to maintain technological leadership and protect national interests, highlighting the intense competition that defines the U.S. and China relations nowadays (BITTENCOURT et al. 2021).
The Chinese response to U.S. attempts to weaken its position is a gradual and partial separation. When it comes to technology, there is no denying that China is a leading player, demonstrating its self-sufficiency and significant export power. In fact, it is the world’s largest exporter, with over $1.2 trillion in exports in 2009, according to data from the General Administration of Customs of China (GACC, 2009). With the country’s expansionism in mind, the diversification of the Chinese market is a key element of its export policy. This strategy is further supported by the Belt and Road Initiative, also known as the new Silk Road, which aims to connect Eurasia and two-thirds of the world’s population across 70 countries through a network of land and maritime routes, launched and led by President Xi Jinping in 2013 (UNISINOS, 2018).
4. Consequences of this Policy for Both Nations
In the short and medium terms, the decoupling policy between the U.S. and China leads to disruptions in global supply chains, increasing production costs and destabilizing the flow of goods and raw materials. Strategic sectors such as technology, manufacturing, and automotive face challenges as they attempt to relocate operations and reduce dependence on China, whose production infrastructure is robust and highly integrated (Gao, 2023). As for the North American nation, shifting operations out of the country requires the creation of new production infrastructures in alternative regions such as Vietnam and Mexico, but these countries still lack the technical capacity and scale to meet full demand, making the process costly and time-consuming (Bank of America, 2023).
According to the Independent Commodity Intelligence Services (ICIS) in 2022, it is estimated that reorganizing supply chains in these critical sectors could increase production costs by up to 30% and require as much as $1.6 trillion over the next decade. In the automotive sector, the shortage of essential components, for example, caused global losses of approximately $210 billion in 2021, and the semiconductor shortage, exacerbated by the U.S-China tensions, increased the cost of electronic products in 2022 (ICIS, 2022)
Even though the diversification of suppliers is necessary, it leads to losses in productivity and higher costs for consumers. The World Bank (2023) estimates that the reorganization of global supply chains could reduce global GDP (Gross Domestic Product) — is the most common measure for the size of an economy, and it measures the value of total final output of goods and services produced by that economy in a certain period of time (Eurostat, 2023) — by up to 4% in the next decade, and the fragmentation of production chains is expected to slow global growth by 1% to 1.5% per year. The reduction in industrial cooperation between the two largest economies in the world directly impacts the growth in strategic sectors and increases the risk of recession in economies that are interdependent on Sino-American trade (Zhou, 2023).
The decoupling policy between the U.S. and China also directly impacts companies on both sides. American corporations in sectors such as technology, automotive, and pharmaceuticals, which rely on the Chinese market and manufacturing, face new regulations and the risk of sanctions. Many are relocating production to countries like Vietnam and Mexico, though this involves high costs and logistical challenges (Zhou, 2023). This scenario limits innovation and could reduce global growth by up to 1.5% annually, according to the World Bank (2023).
In both cases, the exit or reduction of operations creates uncertainties for businesses and consumers, weakening global competitiveness by fragmenting sectors that depend on an integrated network of global suppliers. Moreover, decoupling limits the ability of Chinese and American companies to compete on equal footing in global markets, leading to a situation where economic competition is replaced by rivalries that weaken the potential for economic growth and innovation globally (CAIXABANK, 2024).
4.2. Risks of a New Economic Cold War
So, are there risks of a new economic Cold War? It’s possible to say there are, however, the current context differs from the 20th-century Cold War, as multilateral institutions like the WTO (World Trade Organization), IMF (International Monetary Fund), and G20 play a central role in mediating disputes and reducing economic fragmentation (WORLD ECONOMIC FORUM, 2024). Moreover, today’s economic interdependence is much stronger, with global value chains accounting for about 70% of world trade. The complete separation of the U.S. and China is both costly and difficult, with estimates suggesting that supply chain relocation costs could reach up to $1.6 trillion over the next 10 years (IMF, 2024).
This possibility is leading to the creation of rival economic blocs, with both the U.S. and China striving to expand their independent networks of trade and innovation (FIDELITY INTERNATIONAL, 2022). This decoupling increases indirect confrontations, such as tariffs and sanctions, which affect sectors like technology, where disputes over semiconductors and telecommunications have been recurring. For instance, in 2018, bilateral tariffs of $370 billion were imposed, and in 2021, sanctions on Huawei (Reuters, 2020) highlighted how these tensions limit global competitiveness and collaboration (Stratfor, 2020).
Although decoupling intensifies global tensions, the presence of multilateral organizations and the complexity of global supply chains act as a natural moderator, making dialogue and cooperation a possibility. These mechanisms help mitigate the negative impacts of a potential economic Cold War and favor global interdependence, thus preventing a complete rupture between the two powers (IMF, 2024).
4.3. Economic Reorientation
With increasing trade tensions, the Regional Comprehensive Economic Partnership (RCEP), which includes 15 Asia-Pacific countries and represents 30% of the world's population and 29% of global GDP, is central to this strategy (China Daily, 2024). The agreement facilitates trade and intra-regional investment, reduces tariffs, and promotes economic cooperation, providing China a dynamic alternative market and strengthening its role as an economic leader in Asia, acting as a counterbalance to U.S. power in the region. In 2022, intra-regional trade within RCEP grew by 9.3%, totaling $6 trillion, or about 28.7% of global trade, which decreases China’s vulnerability to U.S. protectionist policies (Government of China, 2024).
The Belt and Road Initiative (BRI) has also been essential, with over $4 trillion invested in global infrastructure, including projects in Africa, Asia, and Europe. Trade with Africa, for example, reached $200 billion in 2020, and China has increased its presence in the European Union through investment agreements (Asia Society, 2024). Chinese exports to emerging markets grew by 15.1% in 2021, reflecting the diversification of supply chains and the strengthening of relations with Asia and Latin America. These initiatives help China minimize the effects of decoupling from the U.S. and consolidate its economic leadership (Council of Foreign Affairs, 2024).
Furthermore, China’s expansion into Africa not only provides new markets but also vital sources of raw materials, such as minerals and energy resources, which diversify its options and reduce its vulnerability to trade blockades. By investing in infrastructure on the continent, China positions itself as an economic and diplomatic leader in Africa, fostering partnerships that extend beyond trade to include technology and sustainable development (Chen, 2024).
In Europe, China has adopted a selective partnership approach, focusing on countries with interests in technology, innovation, and sustainable development. Although the European Union is cautious about China on issues like security and human rights, trade and investment remain essential. China is a key partner for Europe, and its investments in infrastructure contribute to regional development and enhance its influence. This diversification also allows China to reduce the risks associated with decoupling from the U.S., maintaining access to developed markets and advanced technologies, key factors for its economic growth (Asia House, 2020).
Continuing this, the European Union (EU) and the Association of Southeast Asian Nations (ASEAN) play important roles in mediating tensions between China and the United States. The EU, though critical of China on human rights and security issues, remains one of China’s largest trade partners, with trade totaling $709 billion in 2020, and seeks to promote a rule-based international system through organizations like the WTO. ASEAN, comprising ten countries, maintains a neutral stance, favoring regional stability and promoting economic integration with China through RCEP. Both blocs aim to protect their economic interests and prevent the fragmentation of global trade, promoting multilateralism and cooperation (ERIA, 2024).
5. Is the decoupling complete or partial?
In conclusion, while the U.S. and China decoupling process reflects rising economic tensions, full separation remains unlikely due to the deep interdependence of global markets. China has worked to diversify its economic partnerships, investing in initiatives like RCEP and the Belt and Road Initiative (BRI), aiming to reduce reliance on the U.S. market. However, global supply chains and international organizations, such as the EU and ASEAN, continue to moderate this process. Both countries’ economies are tightly connected, and the global value chain’s complexity makes total decoupling costly and difficult. Consequently, despite the competition, the U.S. and China will remain intertwined in the global economic system, with cooperation still playing a crucial role (Asia House, 2020).
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