The U.S. Chamber of Commerce has just released a report warning of the high costs of any efforts to decouple the American economy from China’s completely. That’s not especially big news: The Chamber has long campaigned for closer trade and investment ties with the People’s Republic, which until very recently have been clearcut boons to the bottom lines of the multinational companies that run this premier American business organization.
What is big news is that the Chamber hasn’t come out against decoupling as such. Far from it, and that’s noteworthy. But the report, and the China record of groups like Chamber, also reenforce the importance of asking and answering a big question about U.S. strategy toward this increasingly wealthy, powerful, and hostile Asian giant that American political leaders and news organizations keep energetically ducking.
First, though, the report’s overall conclusion deserves highlighting. According to principal author Daniel Rosen, an analyst with a consulting firm called the Rhodium Group, “U.S.-China engagement was always contingent on shared liberal economic goals. As Beijing diverges back toward greater state planning, a less permissive stance is necessary. But our self-interest lies in purposeful decoupling, not a gratuitous pulling apart. This study is a step toward re-sizing our engagement rationally.”
These points matter because despite the Chamber’s claim that it’s “long advocated for a balanced and rational approach to commercial relations with China,” especially when key decisions were being made, it’s consistently described the choices faced by Americans in the crudest either-or terms possible. As one of its members told a Congressional hearing in 2000, as the nation was debating the landmark question of whether to accept China’s entry into the World Trade Organization (WTO), “We have a simple choice to make. We can either embrace and profit from China as a trading partner, or stick our heads in the sand and hope they go away.”
Yet however welcome the Chamber’s new acknowledgement that greater Sino-American economic integration and trade, investment, and technology flows aren’t always net winners for the United States, it’s troubling that the study chose to focus on the economic downsides of “complete disengagement” and “full decoupling” from China. For any change of the kind is many years away at best, and no major voices have recommended that it be accomplished immediately.
Further, the report’s overarching assessment that “the costs of anything approaching ‘full’ decoupling are uncomfortably high” is torpedoed by an analytical framework that the Chamber itself admits is woefully deficient practically across-the-board.
For example, readers early on will learn that “because of the many variables at play, it is beyond the capacity of economics to deliver a precise answer regarding the costs of decoupling” and that the report’s “estimations are derived from economic models of ‘normal’ before the COVID-19 pandemic; the macroeconomic assumptions about future supply and demand that such models depend on must now be viewed with great skepticism.” The honesty is refreshing, but also casts doubt on the point of the entire exercise, as it’s a high-falutin’ way of saying “Garbage in, garbage out.”
A closely related flaw: Nowhere does the study look at the counterfactual – that is, the impact on the U.S. economy of maintaining the degree of decoupling that’s been achieved already, or of expanding it on the margins. This failure is especially serious since the Chamber itself agrees that decoupling has long been high Chinese priority – at least since 2006, when Beijing (formally) announced an “indigenous innovation” policy that (in the Chamber’s words) sought to “reduce reliance on foreign technology.”
The Chamber also admits that its analyses “explore only the economic welfare effects: they do not attempt to price in the costs or benefits to U.S. security, which is a critical factor in the rethink of engagement with China.” But enhancing national security in all of its dimensions – including the supply chain vulnerabilities highlighted by the pandemic in medical goods of all kinds, and by Intel’s loss of the global lead in semiconductor manufacturing knowhow in the information technology sector – is, as the authors write, “a critical factor in the rethink of engagement with China.”
No one with a brain in their head would insist that no economic costs will be incurred from significant decoupling. (And yes, in this vein, former President Trump was wrong to boast that when it comes to countries running big surpluses with the United States, “trade wars are” both “good and easy to win.”) It’s the nature of the tradeoffs that now most urgently needs careful examination.
These problems in turn lead to the big question mentioned above. Every American whether acting on their own or in groups has every right to participate in the China policy debate. But the supporters and opponents of ever greater engagement have been vying for decades now, and having been a leader of the former, the Chamber ranks prominently among the losers on the substance. Why, therefore, since the organization and its allies have been so behind the curve for so long, should their input deserve much credibility today?
Sure, as made clear by the Chamber report and the China policy shift seen throughout the mainstreams of the American business, political, and policy communities (at least rhetorically), some learning has taken place. But where’s the evidence that the engagers’ views and instincts are any on target and more valuable in this new environment than they were in years past, when they steered American policy so incompetently, and in fact largely created the current danger? The positions they back today might have worked had they been put into effect before China became such an economic, technological, and military force. But now that the damage has been done, why believe that they’ll suffice now?
At the least, the engagers should face the burden of explaining why their abysmal record over so many years still entitles them to a serious hearing. And it’s even more reasonable to assume that if the likes of the Chamber are backing limited decoupling nowadays, the best course for America is pursuing this goal even more aggressively and comprehensively.