The China-US Economic Relationship

In this modern era, as the economical world progresses at an unprecedented pace, two economical giants; the U.S. and China are the two leading roles that currently holds the pillars of international economical growth itself, with China as the “Global Workshop” and the U.S. as the “Technology Headquarters” of the world. Nevertheless, despite the fact that both parties have an economic interdependence between one another, the old belief where the two giants would not collide seems to be coming to an end, and this may come sooner than what we all had anticipated. Furthermore, there is a slight chance that this may lead to the decoupling of the U.S. and China,  and ultimately another inevitable Cold War where the core of the world economy would be shattered to pieces and countries all around the globe that had always depended on them will be left with two seemingly-impossible choices;  localize the business so it would, on either side of the divide, be seen as local, or they must pick a side.

Moreover, the Covid-19 pandemic has done nothing except further accelerating the exacerbation of this already-critical situation. This provides as a plausible justification for numerous countries for reallocating and reshoring their goods. Japan, for instance, spent a staggering $2.2 billion in order to re-shore their business operations from China. In addition, the pandemic that was believed to originate from China had hit the U.S. especially hard, leading to the greatest losses of any nation in the world. Hence, a powerful backlash from the U.S. is to be expected, mostly noticeable on the approach of last November’s presidential election, in which Donald Trump himself had emphasized even more on his anti-China stance, by stating repeatedly in his campaign that he would end their reliance on China, whilst Joe Biden tried out-promising him by declaring a bold future of “Made in America”. Either way, it is more than obvious that the conflict between the U.S. and China has only intensified since the arrival of Covid-19. In fact, according to a survey in 2020 done by Pew Research Center, 22% Americans have a favorable view on China, while 73% shows exactly the opposite.

As a preparation for the upcoming so-called “decoupling”, both superpowers have started planning a number of efforts in order to successfully navigate through the situation. For example, China’s leader, President Xi Jinping has unveiled a “dual circulation” strategy to cut its dependence on overseas markets and technology in its long-term development, especially from those such as the U.S.. Chinese President Xi Jinping initially thought of the idea in May last year and finalized the bold decision that China will have an “internal circulation” - the domestic cycle of production, distribution, and consumption for its own development, supported by innovation and upgrades in the economy. To put in simpler terms, China is planning of creating a self-sustaining economical cycle in its own territory, therefore, the need for depending on foreign markets will no longer be as relevant, nor essential. Moreover, Xi has also stated that despite the nickname “internal circulation”, it will still be supported by “external circulation”. Adding to that, approximately three decades ago, former leader Deng Xiaoping had already envisioned a “great international circulation” strategy, yet the 2008 global crisis revealed the vulnerability of the export-led model and ultimately led the strategy to fail spectacularly.

On the other hand, from the U.S. side, countless strategies to cut ties with China is more apparent than ever. From the economical sectors, for instance, numerous firms and tech giants, such as Apple, Google, and Microsoft have put in tremendous efforts to withdraw their manufacturing operations and supply chains from China and reallocating them to China’s neighboring countries, such as India, Vietnam, and Thailand. Nonetheless, even though this might not seem to suffice, the fact that the newly-elected president, Joe Biden, also shares the same vision of “Made in America”, which declares an independent economical cycle in the U.S. must also be taken into account.

In conclusion, since both countries have been interdependent trading partners for such a long time, if a decoupling were to happen, it not only would pose a huge threat to the existing trade cooperation between China and the U.S., but also disrupt the economical balance on a global scale. To reinforce this statement, in 2019, despite the economic and trade frictions that were provoked by the US, resulting in a 14.6 percent drop of bilateral trade from 2018, the volume of trade in goods between China and the US still reached an astounding $541.2 billion.