US Economic Decoupling From China May Gain Steam After Election

Emel Akan
By Emel Akan
August 25, 2020Businessshare
US Economic Decoupling From China May Gain Steam After Election
An employee works on a truck assembly line at a factory in Fuyang in China's eastern Anhui province on July 16, 2020. (STR/AFP via Getty Images)

WASHINGTON—The severe supply-chain disruptions caused by the pandemic and the rapidly deteriorating image of the Chinese regime because of its mishandling of the coronavirus have forced the United States to rethink the policies of the past few decades toward Beijing.

As the presidential election nears, both candidates, President Donald Trump and former Vice President Joe Biden, have pledged to bring back supply chains and reduce reliance on China as the world’s biggest manufacturer.

In a recent interview, Trump raised the possibility of a complete decoupling from China during his second term, meaning cutting off economic ties for national and strategic reasons.

“Well, it’s something that if they don’t treat us right I would certainly, I would certainly do that,” he told Fox News on Aug 23.

In an effort to reduce reliance on China for critical medicine, Trump signed an executive order on Aug. 6 to ensure that essential medicines, medical supplies, and equipment are made in the United States.

The Trump campaign also released on Aug. 23 a list of “core priorities” for the president’s second term. One of the key foreign policy topics is to “end our reliance on China,” according to the announcement, which includes the goal of bringing back 1 million manufacturing jobs. Trump proposes providing tax credits and allowing “100 percent expensing deductions for essential industries like pharmaceuticals and robotics” to incentivize companies to produce in the United States.

Biden, the Democratic nominee, also pledged to “bring back critical supply chains” under his “Supply America” proposal. His broader plan is “to bolster American industrial and technological strength and ensure the future is ‘made in all of America’ by all of America’s workers.”

Moving Away From China

The coronavirus crisis exposed how dependent the United States has become on China, and the lessons learned could end the country’s role as the world’s manufacturing hub.

In response to increasing global competition, U.S. companies have outsourced for decades their manufacturing operations mainly to China to reduce costs, but those days are over, according to Willy Shih, Harvard Business School professor and co-author of the book, “Producing Prosperity: Why America Needs a Manufacturing Renaissance.

“The problem is, when you lose the manufacturing, you lose the skill base and the industrial commons,” Shih told The Epoch Times, referring to shared know-how and capabilities within a sector.

“That’s a core thing so if you want to bring it back, you have to relearn that,” he said, noting that it may take decades to bring back manufacturing because of lost skills.

It took 30 years for China and Taiwan, for example, to learn the skills and position themselves for leadership in certain industries, he added.

To revitalize or strengthen America’s manufacturing, Shih believes, the U.S. government needs to inspire young people and give them a reason to want to go into the critical fields of science and technology.

Before the pandemic, the studies showed that U.S. manufacturing was facing a growing skills gap that could leave millions of positions unfilled in the next decade.

Regional Approach

Besides bringing back manufacturing to the United States, the idea of more regional manufacturing is also emerging, which could benefit Mexico and Canada. And the new trade agreement, the U.S.–Mexico–Canada Agreement (USMCA), which took effect on July 1, could encourage businesses to bring their production to North America and advance economic decoupling from China.

Shih believes very labor-intensive manufacturing could be nearshored to Mexico, since labor rates there “now are quite competitive with China.”

In addition, companies are also looking to move their supply chains from China to countries like Taiwan, Thailand, and Malaysia.

A Gartner survey conducted in February and March among 260 companies that are global supply chain leaders found that 33 percent of respondents had already shifted sourcing and manufacturing activities out of China or plan to do so in the next two to three years.

Rupert Hammond-Chambers, president of the U.S.–Taiwan Business Council believes that Taiwan can help the United States commercially decouple from China. Taiwan is well-positioned for the role because it’s an original equipment manufacturer for many U.S. companies, including Apple and HP, he said.

The country is a top destination for semiconductor manufacturing and hence, its autonomy and stability are important for the U.S. government.

Despite the lack of a bilateral pact, Taiwan’s two-way trade with the United States surged 34 percent between 2016 and 2019, which is a result of moving manufacturing from China to Taiwan that is taking place, Hammond-Chambers said.

“The Trump administration’s policy for decoupling and shifting the supply chains has come in lockstep with the Taiwanese government’s interest in reducing Taiwan’s exposure to China,” he added.

That has resulted in significant inflows of investment to Taiwan from Taiwanese companies, he said.

From The Epoch Times

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