Explained | Why is the U.S. shifting its approach to China from decoupling to de-risking?

Explaining why America changed its policy towards China from decoupling to derisking

The story so far: The Trump-era focus of the U.S. to decouple from China is being phased out by a new concept. The U.S. has expressed that it is shifting its policy on China from decoupling to de-risking. The EU has already declared that its approach to China will be based on de-risking. The recently concluded G-7 summit at Hiroshima, through its Leader’s Communique, has also expressed the grouping’s consensus on de-risking.

After the establishment of diplomatic ties between the U.S. and China in 1979, both the countries embarked on a path of increasing economic interdependence. China gained immensely from this relationship, as it helped the country drastically widen and deepen its diplomatic and economic engagement with the rest of the world. As China’s economic and military power grew, its ambition to challenge the primacy of the U.S. in the international system became increasingly apparent. China’s rise not only came at the expense of America’s global clout, but also the latter’s domestic industry, which got “hollowed out” in its four-decade old economic embrace with China.

By the time Donald Trump took over the reins of power in the U.S., dealing with the techno-economic challenge from China became a matter of urgency. The Trump administration made it a point to attack the gargantuan bilateral trade imbalance in favour of China. It also wished to keep the U.S’s high technology sector out of China’s reach. In a series of moves, Trump raised tariffs on Chinese imports which invited retaliatory tariffs from China. The U.S.-China ‘trade war’ started, and bilateral relations were set on course for a “decoupling” from the American standpoint. This approach was marked by a rare sense of bipartisanship in an otherwise polarised domestic political climate in the U.S.

Therefore, the Biden administration which took over from the Trump administration continued with the latter’s China policy. However, over time, the Biden administration added its own features into the China policy inherited from Trump. Most recently the label of “decoupling” has been changed to “de-risking”. According to the U.S. National Security Advisor Jack Sullivan, “de-risking fundamentally means having resilient, effective supply chains and ensuring we cannot be subjected to the coercion of any other country”. While decoupling stands for an eventual reversal of the four-decade old project to enmesh the two economies, de-risking aims to limit such an effect only in areas where it undercuts the national security and industrial competence of the U.S.

This shift has been articulated by the Biden administration in two recent landmark speeches — by the Treasury Secretary Janet Yellen on the “U.S.-China Economic Relationship” at the Johns Hopkins School of Advanced International Studies on April 20, followed by that of Jake Sullivan on “Renewing American Economic Leadership” at the Brookings Institution on April 27. Recent legislations in the U.S. such as the Bipartisan Infrastructure Law, CHIPS and Science Act as well as the Inflation Reduction Act have been subsumed under this new approach. The U.S.’s geo-economic initiatives like the Partnership for Global Infrastructure and Investment as well as the Indo-Pacific Economic Framework for Prosperity are also supposed to reflect the spirit of de-risking.

In order to understand the rationale behind the U.S.’s shift from decoupling to de-risking, it is important to comprehend the timing of the move. The policy change has been announced in the wake of several events of high geopolitical significance. The world has just emerged out of the tentacles of the pandemic after three disruptive years and the global economy is hoping for a resulting rebound. The U.S.-China rivalry had peaked in the past few months — from the ratcheting of tensions across the Taiwan Strait to the acrimonious spy balloon episode between the two countries. China also witnessed Xi Jinping beginning his second decade of rule over China in an unprecedented third term as the General Secretary of the Communist Party of China, Chairman of the Central Military Commission and President of the People’s Republic of China, ever since the dawn of the reform era. In parallel, a year has passed since Russia began its special military operation in Ukraine, with the conflict going on without any end in sight. Mr. Xi, after starting his third consecutive leadership term, made his first foreign visit to Russia where he proposed a peace plan. He has also, in his third leadership tenure, extended his “peacemaking diplomacy” to West Asia, striking gold in normalising the frayed Saudi-Iran ties. All of these developments have necessitated the U.S. to recalibrate its posture towards China. In such a situation, casting the U.S.-China relations as a new Cold War and a zero-sum game appears to be risky for the U.S. Bringing more nuance into its earlier decoupling approach could bring down China’s guard and give the U.S. more room to re-consolidate its strength.

Perhaps, the Russia-Ukraine conflict could have played a pivotal role in enabling the U.S’s policy shift towards China. The Biden administration, unlike its predecessor, has made it a point to reassure its European allies. At a time when China has been backing Russia in its shadow battle in Ukraine against the West, the idea of decoupling hardly appeals to the European Union (EU). The EU has in fact been looking to woo China in order to convince it to stop supporting Russia from skirting Western sanctions.