Former United Nations Ambassador Nikki Haley on Monday said “Communist China gave us the coronavirus.” Secretary of State Mike Pompeo pledged that jobs are “coming home” from China on Tuesday. Trump himself previewed the strategy on Sunday, pledging to bring 1 million jobs back from China and to deny federal contracts to companies that shift jobs there. “We don’t have to” do business with China, Trump said in a Fox interview, adding that he’s willing to decouple the economies “if they don’t treat us right.”
But separating the world’s two largest economies is next to impossible, and any hasty attempts to cut ties — like the recent ban on sales to telecom giant Huawei — could bring massive costs for the domestic economy.
China is America’s third-largest trading partner, after Canada and Mexico, and though bilateral trade slowed in 2019, the Census Bureau says it still neared $560 billion.
“Is it realistic to completely decouple across all sectors? I don’t think it is, and I don’t think it’s desirable,” said Clete Willems, a partner at Akin Gump and a former trade adviser to President Trump. “It would be a mistake to think you can bring every single one of those jobs or supply chains back to the U.S., so I think the administration should think about how to work with allies and trusted partners on supply chain issues.”
There are clear divisions in the White House over how hard to push on China. Trade lawyers in Washington expect economic advisers like Treasury Secretary Steven Mnuchin and National Economic Council Director Larry Kudlow to back trade normalization with China in any second Trump term. On the other side are trade adviser Peter Navarro and the president’s national security team, where figures like Secretary of State Mike Pompeo want the U.S. to keep Chinese companies — and the ruling Communist Party — out of critical industries like telecom, energy and healthcare.
Rather than a complete decoupling from China, the more likely strategy is “diversification,” as the U.S. tries to limit Beijing’s involvement in critical sectors and American firms move business to other, lower-wage countries.
“Many U.S. companies are starting to diversify from China but they are not coming back to the U.S. right now,” said Ho-Fung Hung, a political economy professor at the Johns Hopkins School of Advanced International Studies. “The global supply chain for making products is already dispersed in Asia or other places, so when you move one part out of China it is unlikely to move all the way back to the U.S.”
And rapid policy moves to decouple industries from Beijing — such as the U.S.’s recent ban on sales to telecom giant Huawei and its affiliates — could mean big losses for American companies that rely on access to China’s 1.4 billion-person economy.
Some further weakening of ties to the Chinese economy may be inevitable no matter who wins the presidency. Former Vice President Joe Biden pledged in his Democratic National Convention speech last week that if he’s in the Oval Office, America “will never again be at the mercy of China and other foreign countries” for medical supplies and other critical goods because “we’ll make them here in America.”
Trade watchers see a critical difference between the candidates’ China approaches. Trump has preferred to combat China alone, sometimes angering allies with unilateral tariffs. Meanwhile, most observers, even some Republicans, expect Biden to engage allies as he looks to curtail reliance on the Chinese for critical products.
Some American business interests in China say getting allies on board with U.S. sanctions is critical to preserve their competitiveness. If the U.S. moves to restrict business relationships with Beijing, but allies do not, firms from those countries could just fill in for American suppliers with little impact on the Chinese.
“It’s a big concern for us and our members,” said Jacob Parker, a senior vice president at the U.S. China Business Council. “If companies are either forced or restricted from buying from the Chinese market but there isn’t a coalition of allies doing similar things, then American companies will lose market share to European companies.”
The tech sector says a version of that story is already playing out in semiconductor manufacturing after the White House blocked the sale of microchips to Chinese telecom giant Huawei and its suppliers.