In recent years, the United States has reinforced its position that China is a “systemic competitor,” with “de-Sinicization” as its strategic goal. Decoupling has become a prominent element in the U.S. toolbox. Decoupling in the high-tech sector uses stronger alliances and rule-making against China. The “supply chain shift” and “supply chain severing” that aims to diminish a China-centered global industrial and supply chain system in favor of a U.S.-centered one, has become the primary option in U.S. foreign strategy, especially toward China.
At present, U.S. trade policy is increasingly tinged with neo-mercantilism, as it wants to protect the domestic market and open up the international market for its own superior industries at the same time. It also seeks to build an international order to safeguard its hegemonic interests and crack down on its competitors. The liberalism of U.S. trade policy is fading, protectionism is taking hold and an aggressive and confrontational nature is gaining traction. From practicing protectionism in the name of national security to setting exclusive new standards and rules on the grounds of supply chain security and tech security, U.S. trade policy has already departed from so-called fair trade and become increasingly security-driven. It is fair to say that “trade securitization” has completely replaced trade liberalization as the underpinning of U.S. trade policy, in order to serve its overall national security strategy.
The contours of the U.S. strategy are becoming clear: It aims to revive American industries and accelerate decoupling from China. On one hand, it inherits the tenor and approach of Donald Trump’s trade policy toward China and further intensifies the crackdown on China’s science and technology. The so called sci-tech war against China has been elevated to a U.S. national strategy. President Joe Biden’s administration has been promoting reshoring through such legislative means as the Infrastructure Investment Act, the CHIPS and Science Act and the Inflation Reduction Act. On the other hand, it is trying to ease tensions in its economic and trade relations with allies and partners that started in the Trump era, as part of its efforts to establish new policy coordination mechanisms against China, such as the Trade and Technology Council (TTC), the Indo-Pacific Economic Framework (IPEF) and the American Partnership for Economic Prosperity (APEP). All represent attempts to create a “wall” against China in the high-tech sector through a three-pronged approach — namely the formation of supply chain alliances through friend-shoring outsourcing and manufacturing, accelerated supply chain substitution and robust export control cooperation with allies.
China is quite dependent on the U.S. technologically, and likewise for the U.S. on China, but this interdependence is becoming increasingly tenuous. The U.S. has replaced market logic with the logic of power. It uses sanctions to force manufacturing transfers, seriously disrupting the international division of labor in the global industrial arena and rattling global supply chains, which have also shown signs of de-Sinicization. The share of U.S. imports sourced from China declined from 21.4 percent in 2018 to 17.7 percent in 2021.
Kearney Management Consultants ran an index calculation comparing U.S. imports from China (including Hong Kong) with U.S. imports from 14 low-cost economies in Asia, to gauge the degree of de-Sinicization. The index has fallen from 66 percent at the start of Trump’s presidency to 55 percent by the end of 2021, a decline of 11 percentage points in five years. This represents a decline in U.S. dependence on the Chinese industrial chain.
However, it is likely that the U.S. strategy of reshoring may be at an inflection point. Since 2020, because of the pandemic and other factors, U.S. domestic manufacturing output has increased by 7.3 percent, while it has also become more dependent on manufacturing production in 14 low-cost Asian countries or regions. At the same time, after the index fell to 50 percent in the second quarter of 2021, China’s share of exports to the U.S. rebounded as the emerging Asia-Pacific economies suffered industrial chain disruptions on the back of a resurgent pandemic, with some export orders reversing back to China. (In 2022, some export orders were diverted back to Southeast Asia, as China tightened its COVID response measures after domestic outbreaks.)
It is clear that the U.S. can hardly be expected to pull off its strategy of supply chain containment and its attempt to de-Sinicize the supply chain. Over the decades, the world has developed an industrial division of labor that is highly dependent on China’s supply chain. China’s industrial supply chain is so extensive that it is the largest trading partner for more than 120 countries (regions), and “Made in China” permeates the global industrial supply chain.
According to a report released by McKinsey Global Institute, in 2020, among 186 countries and regions, 33 had China as their top export destination and 65 had China as their top import source. In terms of exports of manufactured goods, China’s share of global exports continues to rise. It reached 19.5 percent in 2020, significantly higher than that of major manufacturing countries such as the United States (5.0 percent), Germany (9.6 percent) and Japan (4.5 percent).
After years of development, China has been deeply integrated into the global industrial division of labor system and has become the center of global trade networks. According to UN Comtrade, China’s trade network centrality reached 98.55 in 2020, the highest in the world, with the U.S. trailing at 88.41, a distant second, and Germany in third place at 86.96.
In the context of the U.S.-China trade war and the decoupling from China initiated by the U.S., China’s trade ties with its Asian neighbors have deepened in recent years, which means that China’s global trade network, and its status as a hub of supply and industrial chains remains prominent. Massive demand released by China’s industrial development will continue to provide strong impetus for the development of the global supply chain.
Industrial and supply chains have become the main theater of competition between China and the United States. America’s technology war against China will be deliberate, intense and long-term. For this reason, China must be strategically prepared for a protracted fight.
At the same time, China must maintain an open and cooperative approach to globalization, and press ahead with institutional opening-up to fully leverage China’s competitiveness in manufacturing and unlock its advantages in defining products, technologies, standards and rules.