In international relations there can never be permanent friends or enemies but only the permanent interest that drives states into relations with each other. This is something visible in the current geo-politics. China which has started its journey from a sick Man of Asia is now a dominant major power challenging even the hegemony of the US. This growth of China that has brought multifaceted impacts for the world at large has at the same time brought a major geopolitical shifts and is posing a threat to the US.
Specifically, in the economic sector, there has been a tariff tit-for-tat going on between two economic giants that has now escalated into a full scale trade war. Involving the world’s two largest economies, it is one of the biggest trade war in the history of international economic relations. Moreover, it’s been shaping the perception on two sides, with the US officials now referring to China as an adversary, while China has been criticizing US for ‘bullying’, and for its intentions to contain China’s rise.
Hitherto, this trade war has given rise to an important conception of economic decoupling between the US and China that entails both states ending their economic dependence on other. The insinuation of which can be found the 2017 rejection by the US government of China’s bid for ‘market economy’ status in documents submitted to the World Trade Organization. However, it was until the National Security Strategy paper which call china a ‘strategic competitor’ that China realized of the US intentions.
Looking into the trade war, it started back in 2018 when the former US President, Donald Trump imposed 25% tariffs on $50 billion-worth of Chinese goods. Not limiting to this, he in 2019 threated to extend it further to $200 billion worth goods. However, for the time being both states through negotiations carved a way out using the G-20 platform. Yet, it wasn’t meant to last longer and soon their talks collapsed. Resultantly, US imposed 25% tariff on $200 billion-worth of Chinese goods, and in return China raise tariffs on $60 billion-worth of US goods.
Nevertheless, this tariff fight between the two brought multiple implication for the world economy and specifically for the US and China. The International Monetary Fund (IMF) Chief, Christine Lagarde, stated that the trade war will shave 0.5% off the global growth in 2020, which means a loss of $455 billion. Likewise, Organization for Economic Cooperation and Development (OECD) predicted the economic output to be reduced by 0.2-0.3% with global GDP is further expected to decline by 0.7%.
Conversely, beholding the insinuations of this trade war on China and the US, we can very well say that the de-coupling of economy is not going to benefit either state. At the end they both have to come on a common ground to avoid the adverse effects on economy. Looking into some facts, according to National Bureau of Statistics (NBS) China, the industrial output has declined to 5% from 5.4%, a 17 years low. Moreover, Chinese fixed-asset investment has depreciated to a 5.6 % growth rate. The purchasing managers’ index (PMI) showed a 0.7-point dip since tariffs imposed.
Yet, to deal with this all, Beijing has opted for consumer tax breaks, started supporting private companies by easing the restriction. Moreover, has been working on its domestic production to fill in the vacuum. Nevertheless, none of them is proving fruitful rather the impact of this economic decoupling can be felt across energy, and technological sectors as well with China still been unable to find a way out.
Same goes for the US as according the official reports, the GDP would see a loss of $500 billion if the US companies will end foreign direct investment (FDI) in China by half. Likewise, no access to China’s semiconductor market will make the US lose up to $124 billion with putting 100,000 jobs at risk. In the sectors like aviation, decoupling will have a cost of $875 billion for the US by 2038. Therefore, in a recent China’s International Import Expo total 197 US exhibitors presented 1,373 commodities, ranking No.1 among the 135 exhibiting countries, and 90% of these US companies are having no plans of leaving China in the near future.
To conclude, the debate regarding US-China decoupling has gain heights. All states around the world are concerned about the consequences of such an act, since it’s going to come in their way as well. Hence, they are now looking for a deal between these two states to end such an economic iron curtain as China–US trade volume fell to $258.3 billion. Keeping in mind the changing geopolitical scenarios with such a pandemic situation where states have suffered a lot because of economic downfall, it’s believed to have created an opportunities for cooperation. A ray of hope exist for both states to move towards the economic integration reckoning the consequences attached. Conclusively, both the US and China have to co-opt as no states can sail alone.
Ayesha Zafar is pursuing her Bachelors in International Relations from National Defence University, Islamabad. She has authored multiple academic publications including research articles and book chapters. Her areas of interest include Middle Eastern politics, the geopolitics of Central Asia, and Indo-Pacific region.
The views expressed in this article are the writer’s own and do not necessarily reflect the views of The Pakistan Frontier.