Like the old mercantilism, decoupling will be just as ruinous for everyone
- Economic warfare being enforced by the US can significantly hurt China, but not without inflicting serious damage on the world economy and its own society, and possibly leading to war
People of my generation were taught that mercantilism – “beggar thy neighbour” – was foolish and unworkable as a national economic policy, and had historically contributed to war. But just as you think the idea is as dead as a doornail, it has come back with a vengeance. Rechristened as “decoupling”, it now has the added ideological and military aspects, which make it not only more foolish and unworkable, but far more dangerous.
Perhaps the danger is a glass half full. It appears many Europeans, who suffered centuries of war, often under misguided economic policy, have at most paid lip service to decoupling, especially against China.
However, bent on containing China (and perhaps destroying Russia), it has been the pundits and politicians in the Anglo-American sphere who have been most enthusiastic about the “decoupling” battle cry. How ironic that it was the British Empire and later the American imperium that taught and imposed free trade on the rest of the world. Is it now worth turning back the clock just to fight China?
You don’t need a PhD in economics to know it’s counterproductive, and will end up backfiring. Many Western companies are voting with their feet – against it. To be sure, some are withdrawing or scaling back in China, many more are doubling down.
Tesla announced this month it plans to build a factory in Shanghai to produce its Megapack energy storage system, which provides lithium-ion battery packs to help store renewable energy for electricity grids and is a crucial driver for its energy storage and generation business.
G7 ministers take sneaky shot at Macron over ‘vassal’ warning
Ford, the carmaker, is securing new mainland Chinese partners despite the Inflation Reduction Act of the Joe Biden administration, which offers massive subsidies to US firms, but disqualifies those with foreign business ties, especially those from China.
But American lawmakers are masters at inserting loopholes into legislation. It appears Ford can cash in on electrical vehicle subsidies under the law while still using nickel and cobalt refined by Chinese companies. Go figure.
Despite the so-called chip war, American chip giants Nvidia and Intel realise they just need to tinker with their graphics processing units (GPUs), which some experts observe do not amount to much of a technical downgrade, to bypass US export restrictions. China is Intel’s largest market outside the US, producing 27 per cent of its global revenue last year. Do you expect the tech giant to give up its most important foreign market just because of a bit of geopolitical tensions?
Commenting on the arrest of a local executive on espionage charges, new Astellas chief executive Naoki Okamura said “we are not considering an exit from China”, as he emphasised that the huge Chinese market was “obviously attractive”. Astellas is Japan’s second-largest pharmaceutical company by revenue.
While more American firms are turning negative on China, their German and French counterparts are seeing a vacuum to be filled. With an already massive presence in China, Volkswagen is doubling down on expanding local partnerships and production plants, under the banner, “In China for China”.
Likewise with chemical giant BASF, which will spend almost US$11 billion on a new chemical production complex in the country by the end of the decade.
The chief executives of both companies, as well as those of Siemens and BMW, accompanied Chancellor Olaf Scholz on his trip to Beijing in November. The latter two firms also have big expansion plans in China.
The question of our time: what exactly are America and China fighting about?
BASF, BMW, Volkswagen, and Mercedes-Benz together accounted for a whopping 34 per cent of total European direct investment in the country between 2018 and 2021. A recent study by the Kiel Institute found that if Germany were to decouple from China, its population would stand to lose more than €131 billion (HK$1.1 trillion) in total income, but more if Beijing retaliated economically.
After the loss of a cheap Russian energy supply, will ordinary Germans accept more income losses and worsening costs of living just to satisfy the whims of Anglo-American hegemonic ambitions?
On a smaller scale, it’s a similar story with France. Emmanuel Macron and his big mouth might have overshadowed his latest trip to China, but the president actually came away with big business contracts spanning such sectors as nuclear energy, wind power, pork, cosmetics and fashion.
There is no doubt that US-enforced decoupling can significantly hurt China, but it cannot be done without also inflicting serious damage on the world economy and its own society. It is the economic equivalent of mutually assured destruction in a nuclear war. China is so completely enmeshed in every corner of the global economy that trying to disentangle all the key ties and knots will do untold, unforeseeable, and unquantifiable damage. It will be pure folly for the so-called West to go along with such a preordained misadventure that will threaten the peace of the world.
China and the US may not be each other’s cup of tea, but they can and must learn to live with each other, for everyone’s sake.
