By Will Krumholz
The United States and China are cutting some economic ties. Whether the decoupling is a good idea or not, It will probably move forward no matter who wins the presidential election in November. Decoupling has big implications for national security and geopolitics, and America’s geopolitical strategy should make sure to reflect this new reality. Decoupling increases the risk of war, and we should work to mitigate that risk.
The Trump administration’s tariffs on China have been the main area of economic separation, with the explicit goal of moving jobs out of China and into America. Whether this policy has caused jobs to flow to the United States is highly debatable. What the policy has accomplished is more U.S. imports from producers outside of China, and fewer imports from China.
But there is more to decoupling than tariffs and trade deficits — much of it currently revolves around technology. The Trump administration has restricted the use of Chinese technology in America and the use of American technology by China, and it has strongly insisted that America’s allies do the same.
Aside from broadly restricting tech ties, Washington has gone hard after several Chinese firms — the chief of which is the Chinese telecommunications giant, Huawei. America alleges that use of Huawei’s equipment by America or its allies could allow China to spy on western firms and governments. The United States has also taken an aggressive stance toward TikTok, which appears to pull all sorts of information in undisclosed ways from users’ phones.
Semiconductors are a key part of the tech decoupling story. America manufactures very few semiconductors relative to the global total but is a world-leader in semiconductor design and manufacturing equipment technology. The Trump administration has restricted the export of semiconductors to China if American tech is used, even when the semiconductor is made outside America.
For its part, China is moving toward decoupling as well. In just about every area in which China depends on the outside world, it is spending heavily to protect and build up a domestic industry to attain self-reliance and eventually outcompete the United States and Europe. Among other areas, China desperately wants a strong domestic auto industry, an airline manufacturer on par with Airbus and Boeing, and a domestic semiconductor design and manufacturing industry.
Huawei’s story is demonstrative of China’s approach. As a baby company, Huawei benefitted from both massive subsidies and stolen technology from the likes of Cisco, AT&T, and Nortel. Now, Huawei is a globe-leading company. It innovates on its own, and it competes against the Western firms it used to ‘borrow’ technology from.
Critics claim the White House policy requiring foreign companies to get a license to sell chips to Huawei will only further incentivize China to produce its own semiconductors. But the truth is that China is and will be pushing toward economic independence, especially when it comes to technology, no matter America’s current policy.
All this goes to say that there are legitimate concerns between the United States and China. China has for years abused trading relationships and discriminated in favor of Chinese firms, and of Chinese products and services. Though there are legitimate criticisms of the White House’s strategy on China, the approach has wider support in Washington than partisan rhetoric would suggest. Tariffs have been politically controversial, but there is a growing agreement on technology decoupling, for example. This presents risks.
America needs to confront a bitter reality: Historically, economic decoupling is a precursor to war. Without a financial incentive to keep the peace, keeping the peace is less likely. Already, China and the United States are canceling talks at all levels of government. This increases the risk that war will be stumbled into, because the two sides are eroding diplomatic channels.
To make conflict less likely, America needs to understand China’s motives. Unlike the Soviet Union, China doesn’t seek global political, ideological, or military dominance. China’s primary objectives are economic dominance and control over its near-abroad. Given these motives, it is troubling that some in Washington see China’s motives through a primarily military lens, and a lens ground with Cold War optics at that.
Yet the American people probably think of competition with China in largely economic terms, not in military terms. If so, that’s the correct approach.
Instead of adding to America’s already massive military advantage, policymakers need to help America outcompete China. This can be done through policies that make American manufacturing more competitive, including a boost of federal research and development spending on the industries of the future. On the military front, America should focus on naval power and keeping the sea open to commerce, not military alliances with China’s neighbors.
Most important, America and China should be talking more, not less. There are very real opportunities for cooperation, and economic ties between the two countries will always be significant, even if they are declining on a relative basis. In a conflict, simple diplomatic channels could save the world from war.
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