Policymakers in both the United States and China seem to have fully accepted, and even embraced, the logic of economic decoupling.
But what exactly will decoupling entail, and what will its consequences be?
MILAN – Over the last year, the trajectory of Sino-American relations has become indisputable: the United States and China are headed toward a substantial, though not complete, decoupling. Far from resisting this outcome, both sides now seem to have accepted that this will play out as a largely non-cooperative game, to the point that they are embedding it in their policy frameworks.
But what exactly will decoupling entail, and what will its consequences be?curity concerns have led to the creation of a lengthy – and still growing – list of restrictions on technology exports to and investments in China, as well as on other channels whereby technology moves around the world. To enhance the strategy’s impact, the US is trying to make sure – including through the threat of sanctions – that other countries join its efforts.
This approach might have met resistance, including in Europe, were it not for the war in Ukraine. The conflict seems to have re-solidified transatlantic relations, after a few fractious years. And while China has remained officially neutral in the war, it has remained committed to its “no-limits partnership” with Russia, which Chinese President Xi Jinping reaffirmed on his recent three-day visit to Moscow.
At the heart of Xi’s partnership with Russian President Vladimir Putin is the shared belief that the US-led West is determined to keep their countries down – to impede their development, thwart their territorial ambitions, and constrain their international influence. This conviction – seemingly vindicated by recent US policy – is also central to the latest iteration of China’s domestic economic agenda.
The beginning of Xi’s unprecedented third term in power brought a flurry of documents illuminating China’s economic plans, not least its strategy to restore rapid GDP growth. Having concluded that the world economy will be less open and more hostile, and thus a less reliable growth engine, China’s leaders are seeking to reduce their dependence on export demand. So, despite continuing to tout multilateralism and economic openness, Chinese leaders’ highest priority is now stability and self-reliance in trade, investment, and technology.
The economic logic is sound. With an economy roughly 80% the size of the US, China has a huge internal market for goods and services, and for factors of production. By improving the integration of its domestic market, China may be able to take fuller advantage of its growth-enhancing potential, thereby insulating itself to some extent from foreign pressures, including challenges to its centrality in global supply chains.
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