Why Prospect of US-China ‘Decoupling’ Is Getting Serious

After three decades of growing trade between China and the West that reshaped the global economy, leaders and businesses in Washington, Brussels and elsewhere are looking to pull back. They worry that China’s dominant role as the workshop of the world has created gaping imbalances and unhealthy dependencies, and harmed their ability to compete in industries created by or transitioning to a low-carbon economy. “Decoupling” was how politicos and pundits initially described the solution, suggesting a clean break. What’s playing out, however, is more nuanced than that.

The obvious analogy is to personal relationships, decoupling being the opposite of pairing up. With China, the US and the European Union, decoupling isn’t an abrupt divorce. Most experts say it will be a slow, steady reduction in their economic inter-dependence. Better words than decoupling, they say, are “de-risking” or diversifying. Companies are using the phrase “China Plus One” to describe new strategies to diversify into other countries. US Treasury Secretary Janet Yellen, in a Nov. 2 speech, said a full separation of the world’s largest economies “would have significant negative global repercussions. We have no interest in such a divided world and its disastrous effects.”