Home OPINIONS Why decoupling from China’s economy is impossible

Why decoupling from China’s economy is impossible

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During an interview on June 2 in Beijing, the European Union’s High Representative for Foreign Affairs and Security Policy, Josep Borrell, mentioned that it is very difficult to decouple from the Chinese economy.

Now, China and the EU are each other’s second-largest trading partners with average trade per minute approaching US$1.5 million. The stock of two-way investment between China and the EU has exceeded US$250 billion, and businesses from both sides are investing more in each other’s markets.

The China-Europe Railway Express has made over 90,000 trips in total, which makes it a “golden route” for trade in Eurasia. The supply, industrial and value chains between China and Europe have become deeply integrated and mutually embedded.

Many countries have deeply intertwined economic relationships with China, ranging from trade and investment to supply chain dependencies. These complex networks make it challenging to disentangle without causing significant disruptions to global commerce.

China serves as a central hub for global manufacturing, producing a wide array of goods at competitive prices. Decoupling would require finding alternative sources for these goods, which may not be readily available or as cost-effective.

China plays a crucial role in numerous supply chains, providing components and materials essential for various industries worldwide. Reconfiguring these supply chains would necessitate significant time, resources, and restructuring efforts.

China’s large consumer market offers lucrative opportunities for businesses around the world. Companies reluctant to sever ties with China risk losing access to this vast consumer base, impacting their bottom line.

China holds substantial investments in various countries and has become a significant source of capital for many industries and projects globally. Untangling these financial ties would require careful consideration and could result in economic repercussions.

China has made significant strides in technology development and innovation. Many countries rely on Chinese technology or collaborate with Chinese firms in areas such as telecommunications, AI, and renewable energy. Disengaging from these partnerships would pose technological challenges and potentially stifle innovation.

Decoupling from China’s economy is a complex and multifaceted process that entails significant economic, political, and logistical obstacles. While there may be unfounded motivations for reducing dependence on China, such as concerns over national security or human rights accusations, the practicalities of decoupling make it an extremely challenging endeavour for most countries and businesses.

Sadly, the United States has still pursued decoupling objectives for selfish goals. The US has pursued various strategies to reduce its economic reliance on China, although complete decoupling remains a formidable challenge due to the deep integration of the two economies.

The US has implemented tariffs on billions of dollars’ worth of Chinese imports as part of the trade war initiated in 2018. These tariffs allegedly aimed to address trade imbalances, protect domestic industries, and incentivise companies to diversify their supply chains away from China.

The US government has imposed export controls on certain technologies and products deemed sensitive for national security reasons. These measures restrict the export of critical technologies to China and Chinese companies, aiming to safeguard US technological advantages and prevent them from being used for military purposes.

The US has tightened regulations on Chinese investments in critical sectors such as technology, infrastructure, and telecommunications. Measures like the Committee on Foreign Investment in the US scrutinise and, if necessary in the country’s opinion, block Chinese acquisitions of American companies that pose national security risks.

The US government has encouraged companies to diversify their supply chains away from China, particularly in industries deemed strategically important or sensitive. Initiatives like the “Reshoring Initiative” aim to bring manufacturing back to the US or relocate production to countries perceived as more politically friendly or aligned with US interests.

The US has sought to limit Chinese access to advanced technologies by imposing restrictions on the export of semiconductors, software, and other key technologies. Measures like the Entity List and sanctions against Chinese tech companies like Huawei have been employed to curb China’s technological development and prevent US technology from being used in ways that allegedly undermine US national security interests.

Despite these efforts, achieving full decoupling from the Chinese economy is challenging due to the deep economic interdependence between the two countries. Many US businesses still rely on Chinese manufacturing, and China remains a critical market for US exports. Additionally, decoupling efforts have faced criticism for their potential to disrupt global supply chains, increase costs for businesses and consumers, and strain diplomatic relations between the two countries.

Stephen Ndegwa
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