WASHINGTON—As the election draws near, President Donald Trump has increasingly taken aim at Beijing, raising the necessity of decoupling, a term that recently gained popularity to describe an economic breakup with the world’s second-largest economy.
“Whether it’s decoupling or putting in massive tariffs like I’ve been doing already, we’re going to end our reliance on China because we can’t rely on China,” Trump said on Sept. 7 during a press conference at the White House.
“And I don’t want them building a military like they’re building right now, and they’re using our money to build it,” he added.
China’s military has surpassed the United States in shipbuilding, air defense, and ground-based missile development, according to a new Pentagon report, which has raised alarms in Washington.
“You see they’re building up a powerful military,” Trump said during the press conference, adding that China’s massive defense spending was financed through billions of dollars lost in trade to China.
“If we didn’t do business with them, we wouldn’t lose billions of dollars. It’s called ‘decoupling.’ So you’ll start thinking about it,” Trump said.
U.S. policy toward China has been a major issue in the 2020 presidential race as American public opinion of the Chinese regime hit new lows. The bilateral relations have been strained by tensions in many areas, including trade, human rights, Hong Kong, and the coronavirus outbreak.
Trump pledges to end reliance on China and bring back 1 million manufacturing jobs in his second term. In order to do that, he proposes providing tax credits to companies and allowing “100 percent expensing deductions for essential industries like pharmaceuticals and robotics,” his campaign policy proposal reads. He also provides no federal contracts to firms who outsource their operations to China.
Trump, during the press conference, contrasted himself with his Democratic rival Joe Biden, calling him China’s “pawn.”
“If Biden wins, China wins, because China will own this country.”
In an effort to out-hawk Trump and Republicans on China, Biden is also pushing to curb economic ties.
As part of his first-term agenda, Biden promises to invest $400 billion to make additional federal purchases of products made in America. His policy relies heavily on federal purchasing power to increase demand and create a domestic market to support U.S. manufacturers. Biden’s campaign states that his strategy could lead to 2 million more manufacturing jobs.
‘Decoupling Is Just Hype’
While the concept of economic decoupling from China has received a lot of attention recently, “decoupling itself hasn’t proceeded,” according to Derek Scissors, Asia economist at the American Enterprise Institute.
Scissors, who is one of the initial advocates of U.S.-China economic decoupling, believes that the current U.S. policy remains tied to a larger economic relationship with China through the “phase one” trade agreement signed in January this year.
“Until we say phase one was a bad idea on our part, decoupling is just hype,” he told the show “NTD Business.”
He noted that there have been some steps towards technology decoupling through the process called entity listing, which requires American firms to obtain a government license before exporting to blacklisted firms.
The entity list now has more than 275 China-based companies, including Huawei, ZTE, and Hikvision. The Trump administration has increasingly used this tool to sanction Chinese entities but these steps “don’t have any teeth yet,” according to Scissors.
“We don’t know the results of that process yet. We know you have to apply for a license, but maybe everyone’s getting licenses, we don’t know,” he said.
The United States has not seen any financial decoupling from China, either.
Investments by U.S. companies in China “hit a record in December of last year before COVID and the second-highest level was in May of this year,” Scissors said.
The phase one trade deal does not address China’s state subsidies and intellectual property (IP) theft, top concerns of the Trump administration and the impetus for starting a trade war. These important issues in the U.S.–China relations are put off for future negotiations.
Scissors believe that none of these thorny issues will be resolved. In a recent report, he makes the case for partial decoupling from China and outlines his recommendations.
“Decoupling is a recognition that America should drop the pretense of changing the PRC, instead restricting and shrinking the economic relationship for an indefinite period because parts of it are harmful,” the paper states.
In the past decade, by funneling hundreds of billions of dollars into government subsidies, China has created large state-owned enterprises (SOEs) in key industries.
According to the report, 20 companies in the Fortune 100 are Chinese SOEs. Eleven of them enjoy regulatory barriers prohibiting competitors, and the remaining nine are guaranteed never to go out of business. Hence, state subsidies make economic relations with China unbalanced at the expense of U.S. companies.
The report also stresses that American wealth combined with voluntary and involuntary IP transfer has helped advance the People’s Liberation Army.
“Slowing the flow of money and technology will reduce the odds of a destructive military conflict,” the report said.