How US politicians are mangling the economic debate over decoupling from China

Targeting China won’t solve the US trade deficit, which ballooned because of America’s own macroeconomic woes

And arguing for ‘de-risking’ instead of decoupling makes no difference to the deleterious effects of shifting trade away from China

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US Treasury Secretary Janet Yellen at the Diaoyutai State Guesthouse in Beijing, on July 8. Yellen, a first-rate economist, was right in judging it disastrous to try to decouple from China. But saying no to that and yes to “de-risking” is a false dichotomy. Photo: Reuters

Stephen Roach

Stephen S.

Published: 3:45pm, 27 Jul 2023Updated: 5:27pm, 27 Jul 2023

American politicians have a long history of mangling economic policy debates. Some recognise reality, like when George H.W. Bush characterised so-called supply-side tax cuts as “voodoo economics”. But far too many distort economic statistics and analysis to score political points – think deficit scolds or the rise of modern monetary theory.

The debate over US-China decoupling is a case in point. From President Joe Biden down, US policymakers have finally realised it makes no sense to argue for a full-blown decoupling. Treasury Secretary Janet Yellen claims it would be “disastrous”. Secretary of State Antony Blinken and national security adviser Jake Sullivan also dismiss the possibility, stressing the record bilateral trade is prima facie evidence that decoupling simply cannot happen for two tightly integrated economies.

A careful look at the numbers offers a more nuanced assessment. Yes, bilateral trade – exports and imports of goods and services, combined – hit a record US$760.9 billion last year. But gross domestic product and most of its major components also broke records.