Many commentators have drawn attention to the shocks experienced by the global trading system from the twin blows of the pandemic and geopolitical tensions between the US/Europe and Russia/China. Without doubt, international supply chains are being thoroughly examined and strategic dependencies are top of many countries’ agendas. And yet, despite talk of globalisation’s demise, economic integration via cross-border commerce has shown remarkable resilience through war, famine and the pandemic.
Source: Bloomberg
The strategic competition between the US and China is most interesting because it appears to herald a major long term theme common to both sides of the US political spectrum. From Congress to the White House, there’s a clear determination about the need to out-compete and isolate China. As the National Security Strategy outlined last October, a decisive decade looms that will determine where the US stands in the world “long into the future.”
That assessment underlies a raft of measures taken in recent years, spanning both the Trump and Biden administrations:
- Seeding investments in strategic domestic sectors;
- Barring exports of high-end semiconductors and the equipment to make them to China;
- Banning business with some 600 Chinese companies for their ties to the military or human rights abuses;
- Pushing allies to reduce their own economic ties with China.
But some in the US administration are keen to emphasise that the goal isn’t decoupling. National Security Advisor Jake Sullivan has now opted for a phrase used by European allies — “de-risking.”
Treasury Secretary Janet Yellen has sought to calm allies’ anxiety over the escalating bilateral tensions with China. In a recent speech, Yellen said decoupling would be “disastrous for both countries.” Which echoed warnings about the global cost of economic fragmentation coming from the International Monetary Fund and others. But with the US elections coming up next year, expect the angry political rhetoric to ramp up rather than tone down.
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