Economics Assignment: Essay On “The US-China Decoupling”

Question

Task:
Please read the case “The U.S.-China Decoupling” and other relevant materials you may come across from the internet, and write a short essay on economics assignment to address the following questions:

1. What caused the US-China decoupling? Is the decoupling inevitable? Why or why not?
2. Who are bearing the costs of the U.S.-China decoupling? Who might potentially get some benefits from it?
3. Which decision-making model might best explain decisions made by the US government to decouple China? The rational model? Incremental model? Organizational process model? Or bureaucratic politics model? Why?
4. How might be the prospects of US-China decoupling in the future? What insights can the study of the decision-making models provide?

Answer

The U.S.-China Decoupling

The concept of decoupling examined in the economics assignment refers to the process of a growing relationship between two countries or world regions that had previously been closely linked. It is often used in debates over international economic interdependence and globalization. Decoupling can be either vertical or horizontal, depending on whether it entails a relative change in exports and imports as well as factor flows, such as capital, technology or migration. Decoupling is thought to be related to deindustrialization and deagrarianisation of the economy.

Decoupling may be a phenomenon we will see more and more in the future, as it has been happening recently. However, I think decoupling is pretty rare. Decoupling would happen if there was a shift in economic power from one region to another. In this case, China's rise caused the US to lose economic clout and for China to gain. However, I think the decoupling is not inevitable in the future because eventually China's economy will slow down and stop growing so fast.

Decoupling is not inevitable in the future because eventually China's economy will slow down and stop growing so fast. US has been one of two global superpowers for decades now, and China is rising up. This decoupling of the US economy from China's is a sudden change in the world, so it will be hard for us to predict if this decoupling will be a trend or a one-time event. Because there has been little historical data, we cannot extrapolate from past events to understand future events.

The US's economy was larger than the Chinese economy in 1980, so there is no reason for this decoupling to happen. However, China started to rise up after they joined the WTO in 2001. This allowed China to export more of its goods and services on a global scale, which made it grow quickly. So the question becomes why did China enter the WTO? Internationally, China already had a positive image among other countries, so they wanted to join. This is because they didn't want any more wars and they wanted to prove that communism was not evil. Domestically, I think it's possible that future leader Jiang Zemin thought that joining the trade agreement would be beneficial to China's economy. And Deng Xiaoping wanted to maintain communism, so he agreed with Jiang Zemin.

China joined the WTO because they want to prove that communism was not evil and because future leader Jiang Zemin thought it would be beneficial to China's economy. The US cannot decouple from China in the future -- although there have been some claims that the decoupling has already begun -- because of economic ties. The US economy is heavily invested in China, and vice versa. For example, according to Wikipedia, Apple's iPhone sales accounted for about 60% of all smartphones sold in China last year. And it looks like the Chinese market will be even more important for Apple to grow, so Apple will continue to do business in China. So, the decoupling cannot be inevitable because there are too many economic ties between China and the US.

China's plan to decouple from the United States has created a new normal in international trade, which is reevaluating the relationship between the two countries. This emerging trend has put emerging markets at risk of retaliatory tariffs that will hurt their exports, while it benefits other economic powers that are focusing on domestic production rather than serving as manufacturing location for American consumers.

China has responded to the escalating trade war by accelerating its transition from an export-led economy to one led by domestic consumption. This plan aims to reduce China's dependency on external demand for its exports, which suffered during the great recession after 2008 and recovered at a slow rate since 2017. Now it seems that current development plans will continue to aim for an economy that will be more domestically driven than ever before.

China's growing dominance of the world's manufacturing supply chains has put it at risk of becoming a target of American protectionism, as its appetite for Western consumer products continues to rise. The United States is finally realizing that China cannot continue to grow without also increasing domestic production in order to meet the demands of its own consumers. China is now incentivizing domestic companies to invest in their local economies and develop new markets in place of the United States and other Western powers.

The best decision-making model to describe the US government's decisions regarding decoupling China would be a bureaucratic politics approach. This can be inferred from an analysis of the multiple risks and benefits associated with each option, as well as a look at the effect of certain key players' possibly competing motivations. 

The rational model is the best decision-making model in situations in which there are few, if any, trade-offs involved with each option or when all parties have similar goals that do not conflict with one another. Since there were significant risks and benefits to all options available for the US government at the time, this explains why the rational model would not be the best decision-making model to use.

Similarly, a bureaucratic politics approach is also a better choice than an incremental or organizational process model for deciding how to deal with China during that era because of multiple competing interests and risk assessments involved in each option available. There were many risks involved with the status quo option, some of which would have been mitigated by decisions to decouple China. However, incrementalism is not seen as an effective method for dealing with trade issues in general, so it likely would have resulted in a less than ideal solution to this issue. Furthermore, if certain players who were pushing for decoupling were successful, it is likely that the decision would not have been put into action.

In the present day, economic interdependence between China and America is a major global concern. In fact, it has been argued that these two countries are largely interconnected and thus their policies have a large influence on each other. However, there might be an impending decoupling of China from the U.S in terms of its economy due to the reorientation of China's economy from manufacturing to consumption. This is especially true for China, since manufacturing is America's core industry that contributes to its economic growth. 

In a situation where the United States wishes to challenge China in certain areas such as trade, technology and security, but lacks sufficient strength to do so, it will be necessary for the two countries to cooperate on these issues. There is no need to exaggerate problems through the prism of us-china decoupling, and even if such an event occurs, we should not fall into panic mode.

For this kind of major issue, we should carefully study and analyze situations and be prepared for all possibilities. We also need to consider the repercussions on other countries in the region since China is a huge economic power. A trade war between China and the United States will also negatively impact other countries in Asia, including Japan, South Korea and Taiwan. It is best to calmly deal with the issue instead of over-reacting to it.

References:

Joshi, M. (2021, February 12). US And China: Decoupling In the Era Of COVID19 | ORF. ORF. https://www.orfonline.org/research/us-and-china-decoupling-in-the-era-of-covid19-67545/.

If It Comes Down To a China Bloc Vs US Bloc, Who Stands To Gain the Most?. (2021, September 16). Economics assignment South China Morning Post. https://www.scmp.com/economy/china-economy/article/3149027/us-china-decoupling-if-it-comes-down-us-bloc-vs-china-bloc.

The Strategic Challenges Of Decoupling From China. (2021, May 1). Harvard Business Review. https://hbr.org/2021/05/the-strategic-challenges-of-decoupling.