Mon, Feb 25, 2019 - Page 6 News List

Walter Lohman On Taiwan: The problem with decoupling

Over the last two years, there has developed in Washington a chorus of opinion calling for a separation or “decoupling” of the US and Chinese economies. It is too sweeping, unrealistic and counterproductive to serve as a guide to policy. There are better approaches.

On its face, the case for “decoupling” is compelling. The interaction of the American and Chinese economies inevitably involve the sharing of technology. Some of this sharing is voluntary, some of it involuntary. Either way, the argument goes, given the nature of the Chinese system, it is the Chinese Communist Party and its military that benefit most from the economic exchange.

Proponents of decoupling argue that by drastically limiting the connections between the two economies, the US can counter not only the threat to American technology, but, in the process, the whole panoply of threats from China.

Of course, reality is not so simple.

Yes, the US has some very serious differences with Beijing. Leaders in Beijing believe, despite everyday experience, that Taiwan is its territory; the US is committed to defending Taiwan’s de facto independence. The Chinese see the South China Sea as a Chinese lake in which it should enjoy the prerogatives of ownership; the US sees it as international common space in which the law of the sea should prevail. The Chinese Communist Party subjects the Chinese people to all manner of indignities from attacks on churches to reeducation camps; the US stands against this oppression.

One can theorize that this state of affairs is the product of big geostrategic trends, the return to “great power competition” — as it is described in America’s 2017 National Security Strategy. This may be a useful designation if it spurs the US to acquire the right military assets and to deploy them where they matter most. If wrapping various China challenges into one elegant understanding helps the US organize its diplomatic resources more effectively, it would also serve a useful purpose.

“Great power competition,” however, when applied to economics, leads to costly government interference in economic decisions that are best left to the market. It promotes inefficient, closed supply chains and high tariffs. It lends itself to government subsidies and choosing winners and losers among American companies. Indeed, it argues for nurturing national champions, the same sin the world attaches to the Chinese.

“Decoupling” grows out of this theorizing. It also feeds these nefarious policy choices.

There are two other problems with “decoupling.” One, because it ignores the fact that most trade is conducted in intermediate goods, it is infeasible. Most of the world’s electronics are made in China, for instance. Is the US ready to force its companies completely out of this market — with the impact on price this would entail?

Two, decoupling will ultimately result in the isolation of the US, not isolation of China. Take the EU. China is the EU’s second-largest trading partner. The EU is also the world’s biggest investor in China. Neither it, nor American allies in Japan and South Korea will go along with decoupling — although they will readily pick up many of the opportunities the US leaves behind.

The US should approach China less as a geostrategic issue, and more as a series of particular problems requiring tailored solutions. Some of those, like the problem with intellectual property require extensive intra-government coordination. The Justice Department’s “China Initiative,” interagency export controls and the multi-agency investment approval process are all sound parts of this effort. Banning the Department of Defense from purchasing components from government-linked Chinese companies is simple common sense. And in the end, for very specific security concerns, the US may be well-advised to bar Chinese companies from its 5G telecommunications network, and encourage its allies to do the same. But the US also needs to address China’s threats to Taiwan, its provocations in the East China Sea, and its steady encroachment in the South China Sea. Those require a different set of tools — diplomatic and military. Trade issues require yet a third cross-section of agencies.

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