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US Transnationals Have Major Stake in ‘Decoupling’

Oct 11, 2019
  • Zhang Monan

    Senior Fellow, China Center for International Economic Exchanges

Three overlapping networks — trade, investment and industry — have formed the foundation of globalization over the past few decades. Driven by worldwide capital and technology flows, globalization transcended national politics and protectionism to bring together the whole world in a close bond in which transnational corporations from the United States played a leading role. They have also been the major beneficiaries of globalization.

China and the U.S., as the world’s largest developing and developed economies, respectively, combine to make up 40 percent of the world’s total volume of manufacturing. With common interests and huge potential for cooperation, the two economies are interlocked in each other’s industrial, innovation and value chains. Statistics from 2016 indicate that the American transnationals, including their overseas subsidiaries, generated $5.8 trillion in sales in other countries, including $1.58 trillion in the Asia-Pacific region and more than $400 billion in China. Many transnationals’ sales income in China even exceeded their domestic income in the U.S. The top 10 American semiconductor companies’ income from China accounted for more than 50 percent of their total.

Thousands of links in transnational industrial chains fit closely together with high precision in a timely and efficient manner because of contract-based mutual trust and the close and stable partnership forged between the upper, middle and lower reaches of the chains. The U.S. government, however, obsessed with unilateralism, used administrative intervention to force American transnationals to readjust their global value chains, artificially disrupting the global division and the manufacturing and supply chains. In the first half of this year, U.S. imports from China decreased 12 percent while its exports to China dropped 19 percent. The trade frictions did not reduce the U.S. trade deficit with China; instead, they distorted bilateral trade and upset transnational corporations’ industrial distribution, causing the costs of production and market operations to soar.

An even more serious consequence is that it’s difficult to make long-term plans for investment, given the great uncertainty, which is far worse than the problem of tariffs.

In late September, trade representatives from China and the U.S. resumed talks, sending a signal to the world. The international community looks forward to an agreement between the two countries under the principle of equality, mutual benefit and respect. The trade friction has lasted for more than a year, and the differences on both sides boil down to basic choices — whether they will pursue a zero-sum game or a win-win result, whether there will be confrontation or cooperation, whether we’ll see isolationism or opening-up, whether the choice will be monopoly or competition and whether unilateralism or multilateralism will prevail. These are matters of principle. China’s stand and attitude on these questions has been clear, steadfast and consistent: Opening up further and realizing mutual benefit is the right way forward.

In the “2019 Industry Catalogue for Encouraging Foreign Investment” issued by China’s National Development and Reform Commission and Ministry of Commerce recently, 80 percent of the newly added and revised items are manufacturing industries, including industrial robots, new-energy automobiles and key parts of cars using artificial intelligence. The addition and revision well reflects China’s will to encourage foreign investors to participate more deeply in China’s economic development and market, as well as in the upgrading of the global industrial chain.

It is still rather uncertain where Sino-American relations will head in the future. In a recently published cartoon, U.S. President Donald Trump, standing on a train carriage representing the U.S., pulls off the hook that links the Chinese carriage. Some people in the U.S. are pushing the idea of “decoupling” with China, but not everyone agrees with it. In early July, the Washington Post published an open letter signed by 100 people addressing Trump and Congress, arguing that “China is not an enemy” and that an all-around decoupling with China would do more harm than good to the U.S.

As the trade war continued escalating and there appeared signs of complete decoupling in certain aspects of relations, those in the U.S. who had supported the trade war and hoped for a quick victory were disappointed. They seem to have wavered somewhat in their conviction about Trump’s victory. Peter Harris, a political analyst, said that it was wrong to wage a new cold war against China. He believed that it was not too late for Washington to back away from the edge and begin to restore the damaged relationship.

American business circles also began to realize that a complete breakup or disengagement in relations would have a huge impact on the world order and inflict tremendous losses on big companies in the U.S. According to a survey by the U.S.-China Business Council, nearly 90 percent of the companies interviewed said they had not moved, and had no plan to move, their business away from China. More than 80 percent said they had not reduced or suspended their investment in China. Data from the Rhodium Group suggest a year-on-year 1.5 percent rise in the first half of this year in American businesses’ investment in China on the basis of the average value in the past two years, a possible sign of bucking the trend of trade frictions. Of the companies interviewed, those that had seen their profit rates in China exceeding their global profit rates account for 45 percent, a significant rise from the 38 percent last year. This fact indicates that China is still one of the most important markets for American businesses.

Recently, the American Chamber of Commerce and other business organizations appealed to both countries, urging them to prevent the trade conflict from escalating and to return to the normal track of bilateral exchanges. It’s virtually impossible for relations to return to the past state; but the global industrial chain, with transnational corporations as the backbone, is still a mainstay for sustaining relations between China and the U.S.

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