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Washington Examiner
Restoring America
11 Feb 2023

NextImg:With balloons, chip bans, and soaring trade, US and China maintain delicate waltz

We hear a lot these days about decoupling between the United States and China : that the two economic giants are slowly but surely unwinding their commercial, technological, and financial connections. Indeed, a growing cohort in Washington is rooting for it. The theory: the less tentacles America has in the Chinese market, the less dependent it will be on a strategic rival for its basic supply chains.

Still, it would be inaccurate to say that Washington and Beijing are intent on full decoupling. Moving down that road is simply not practicable at the moment, and it would have inevitable repercussions in the global marketplace.

The latest U.S.-China trade figures confirm this: According to the Bureau of Economic Analysis, trade between the two hit a record high of $690 billion last year, surpassing the pre-COVID high of $658 billion in 2018. China remains a huge export market for U.S. businesses in various industries and one too promising for U.S. industry groups to jettison. We can talk about the U.S.-China trade imbalance all we want (the Trump administration tried to chip away at the imbalance with a series of tariffs, culminating in a trade agreement binding Beijing to purchasing an additional $200 billion in U.S. goods), but the disparity between imports and exports was simply too cavernous to bridge. The fact is that businesses want to make a profit — and as discouraging as it may be to the uber-hawk on the floor of the U.S. House of Representatives, this often means going through China to do it.

Even so, bilateral trade figures can be deceiving. Looking at the numbers alone, you might assume all the geopolitical acrimony in the U.S.-China relationship, complete with People's Liberation Army overflights across the Taiwan Strait median line and Chinese surveillance balloons over the continental U.S., isn’t bleeding over into economics.

But this would be incorrect. While U.S. industry may continue to look to China as a profitable market for their bottom lines, the Biden administration is targeting that very same market with export controls on high-end products such as semiconductors and chip-making machinery. More and more Chinese companies are being placed on the Commerce Department's entities list, which allows Washington to block the sale of U.S.-manufactured technology to those very same companies (just as Huawei, the Chinese telecommunications giant, shows how painful this list can be). Trump was regarded as an extreme China hawk during his time in the White House, yet Biden is actually proving to be even tougher on Beijing, essentially designating the entire Chinese market as a no-go area for advanced U.S. chips.

The discovery of the big, white spy balloon over sensitive U.S. military sites hasn’t done China any favors, to be sure.

The outrage generated by this violation of U.S. sovereignty is only playing into the hands of those in Washington, such as Rep. Mike Gallagher (R-WI), who already believe the U.S. is deep in the midst of a new cold war with the Asian superpower. More China legislation will be introduced, the vast majority of which will include additional punitive measures (such as sanctions and export bans) on China. In some respects, the Biden administration isn’t waiting for Congress; a recent New York Times report described imminent Treasury Department action on new procedures that would screen U.S. investment in China to ensure American dollars aren’t inadvertently contributing to Chinese military and surveillance efforts.

The U.S. and China, therefore, find themselves in an odd position. The two continue to be top trading partners, with a heck of a lot of money flowing in and out every single day. At the same time, however, the world’s largest economies are placing investment and export limitations on select, dual-use products in an attempt to keep each other down in this highly stressful game of great power competition.

Whether the U.S. and China can maintain this balancing act over the long term is a question we can’t answer yet.


Daniel DePetris (@DanDePetris) is a contributor to the Washington Examiner's Beltway Confidential blog. His opinions are his own.

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