EP 35: A distinction without a meaningful difference? Decoupling v. De-risking

 

Summary:

In this episode, we discuss two distinct strategies for addressing economic dependence on China: de-risking and strategic decoupling. De-risking, favored by the Biden administration, aims to reduce reliance on China in specific strategic sectors like semiconductors through targeted tariffs and export controls. In contrast, strategic decoupling, favored by Republican policymakers, advocates for broader tariffs and restrictions to minimize trade deficits and dependencies, prioritizing long-term economic threats. We highlight that while both approaches seek to reduce dependence on China, they differ in their scope and implementation, with de-risking potentially facing criticism for perceived compromises and strategic decoupling risking backlash from trade partners and businesses. We conclude by suggesting that regardless of the political outcome, the United States will reduce its global footprint and increase reshoring, with the degree of change depending on the chosen policy approach.

Questions to consider as you read/listen:

1. What are the key differences between de-risking and strategic decoupling in terms of their objectives and policy tools?
2. How do the respective approaches of de-risking and strategic decoupling impact the US's economic and political relationships with China?
3. What are the potential challenges and trade-offs associated with implementing each approach in the US-China relationship?

Long format:

A distinction without a meaningful difference? Decoupling v. De-risking

De-risking, as endorsed by the Biden-Harris administration, selectively uses tariffs and export controls to target specific strategic sectors, aiming to reduce reliance on China, especially in key industries like semiconductors, without severing all economic ties. It balances the costs of action (e.g., tariffs and restrictions) against the costs of inaction (e.g., dependency on China).

Strategic decoupling, favored by Republican policymakers and rooted in the ideas of former U.S. Trade Representative Robert Lighthizer, seeks to minimize trade deficits and dependencies by implementing broader tariffs and restrictions. It places a stronger emphasis on the potential risks of inaction, such as China’s growing economic and military dominance, and seeks to prevent U.S. economic engagement with China where it is deemed harmful, while allowing beneficial exchanges.

While both strategies focus on reducing dependencies on China, de-risking aims for targeted, balanced interventions, while strategic decoupling advocates for more comprehensive actions with a focus on preventing long-term economic threats. These differences in policy approaches could lead to distinct challenges in implementation and political support, with de-risking facing criticism for perceived compromises, and strategic decoupling risking backlash from trade partners and businesses.

But in all practical senses is this a word game of semantics or is there a practical difference? This article gives evidence to the thoughts presented in our podcast that no matter who wins the POTUS race, the US footprint in the world will be less and reshoring continues, it is just a question of degree.

https://thediplomat.com/2024/10/de-risking-vs-strategic-decoupling-understanding-harris-and-trumps-approaches-to-economic-security/