The notion of de-coupling the economic relationship between the United States and China is something of a red herring.
The more extreme elements of the former Trump administration may well have wanted to foment a rupture in U.S.-China trade. The former president himself voiced that sentiment when he told Fox News last May, “We could cut off the whole relationship.”
If anything, China has become ever more indispensable to global supply chains. “Chinese producers have substantially upgraded their capabilities,” noted Robert Lewis, co-founder of the think tank China Going Global (CGG), by moving from product assembly “into production of more sophisticated key components which previously were supplied from abroad.”
In 2009, China performed only assembly work for the Apple iPhone 3G, representing 3.6% of total costs. By 2018, China was also producing the printed-circuit board, battery pack, and camera module for the iPhone X, increasing its share of the bill of materials to 25% of the total.
“This,” according to Lewis, “is representative of the overall trends for China manufacturing. This comprehensive ecosystem of the value-added manufacturing supply chain in China will be difficult to replicate elsewhere.”
There’s another reason why a U.S.-China divorce is not advisable: China has become an increasingly important U.S. export market. China is Apple’s third-largest market, accounting for 20% of global sales. China is the number-one market for General Motors, where it sells over three-million vehicles a year. Cummins sells one-third of its engines in China. Qualcomm’s sales in China are quadruple its U.S. sales. China sales account for 25% of U.S. antibiotics production.
In all, as many as 20 major high-tech U.S. companies earn between 20% and 50% of their revenue from exports to China, according to Yukon Huang, a former World Bank country director for China.
Some argue that China’s market is replaceable. India and Indonesia are projected to generate 21% of global middle-class consumption by 2030, and Africa, Latin America, and the Middle East could contribute another 13%, according to a Brookings report.
Great. Why not sell to all of them?
COVID-19 did highlight the dangers of being dependent on overseas sources for equipment essential to fighting public health emergencies. The pandemic has also underscored the importance of resilience in supply chains. And there are still the outstanding issues of China’s unfair trade and technology acquisition practices. But there are ways of handling these matters short of eviscerating global supply chains and U.S. exports.