The Debate to Decouple
By Maxwell Bessler
'New Perspectives on Asia' highlights the research of junior CSIS staff and interns on issues that are quietly shaping the world's most dynamic region.
The world’s two largest economies intertwine the two great powers in delicate competition. China’s integration into the global economy fueled its rise to the top of the world economy with the United States. As China emerged as an economic competitor and strategic rival, national security concerns in Washington arose over the benefits of that economic engagement. Policymakers and pundits now debate whether, and how, the United States ought to “decouple,” broadly defined as restrictions that hamper international business with China.
This article seeks to understand the four distinct views on decoupling from China driven by the U.S. government through the policy channels that affect the flow of trade, technology, finance, and people. Before doing so, it is first necessary to know why Washington wants to restrict private economic engagement with China.
China’s export-led ascension would be impossible if not for the United States’ appetite for cheap imports. Since China began economic reforms in 1978, China’s GDP growth averaged nine percent a year and lifted over 800 million Chinese citizens out of poverty. Since 1985, U.S.-China trade volumes grew 51 times to make the United States China’s largest export market. China’s maturation into the “World’s Factory” has supported the United States’ dominant position in the global economy. China has been central to the world’s and U.S. manufacturing supply chains, earned hundreds of billions of dollars for U.S. investors, sent the most students to the United States out of any country in the world, and put almost a million U.S. citizens to work in direct U.S. export sectors.
As China began to match the United States in economic strength, pursued a more aggressive foreign policy, and deviated from its hoped liberalization, relations soured and geopolitical competition emerged. Many believe the “Pivot to Asia,” a reprioritization in U.S. foreign policy to China over the second half of the Obama administration, responded in-part to growing anxieties about Chinese military strength amid tense geopolitics over a fleeing dissident, indictments on Chinese hackers, and controversial South China Sea reclamation plays. By the 2016 U.S. election, several politicians called into question the benefits of U.S.-China economic engagement. After President Obama, President Trump’s rhetoric to seek “a fair and reciprocal [trade] deal” with China sparked a questionable trade war that raised tariffs for the first time in decades. This October, President Biden’s national security adviser Jake Sullivan declared that “the post-Cold War era is over, and a competition is underway between the major powers to shape what comes next.”
Competition provoked U.S. policymakers to reconsider how private U.S. firms engage with their Chinese counterparts and markets. Worsening U.S.-China relations provoked four broad views among U.S. policymakers on decoupling: separationists, restrictionists, centrists, and cooperationists (See Figure 1). In a report published last April, specifically on technological decoupling, Jon Bateman, senior fellow at the Carnegie Endowment for International Peace, spends a section introducing cooperationists, restrictionists and centrist ideologies to set up an argument for the centrist middle path. This analysis seeks to broaden and crystalize Bateman’s first broach of the topic.
Figure 1: Views of U.S. Policymakers on Decoupling
Note: This figure represents the analysis of the author, Maxwell Bessler.
Cooperationists favor the most economic integration among all the positions. It dominated previous eras of U.S. thinking towards economic engagement with China. Today, they are commonly pro-business technocrats who find the benefits of continuing U.S.-China engagement greater than their strategic risks. Even in many strategic sectors, they view the profits, innovation, and the peace those two can create as more favorable to U.S. interests than any targeted measures to restrict business activity noxious to national security.
Cooperationist policies couple the two economies closer together: free trade agreements; tariff reductions; and knowledge, non-tariff barrier, and data-sharing agreements. Dominating the previous era of U.S.-China economic relations, cooperationist landmarks between Beijing and Washington include China joining the World Trade Organization (WTO) in 2001 to the U.S.-China Cyber Agreement in 2015.
Cooperationist policymakers are hard to find today. Almost no official economic coordination among governments has existed since Trump won an election harping open hawkishness towards China and initiated a trade war that raised tariffs. This August, preliminary talks on several economic issues were suspended after Speaker of the House Nancy Pelosi visited Taiwan. But this November, the G20 summit in Indonesia sparked new hope after Xi and Biden’s face-to-face. Only time will tell. Regardless, those who advance cooperationism are easier to find outside of the Executive. Many work in transnational industries like Silicon Valley or in the geopolitical pockets of pacifist progressivism, like Bernie Sanders, that argue decoupling policies could self-fulfill great power competition.
Separationists consider a “complete decoupling”––opposite to the cooperationist view that favors integration. Heightened competition provoked policymakers and analysts to consider an unlikely future where the United States and China cease all economic activity and separate into separate blocs reminiscent of the Cold War. Separationism usually emerges among populist politicians as an extreme form of economic nationalism. Certain statements made on Twitter by President Trump and others provoked analysts to understand the impact of full decoupling.
Thanks to the tense geopolitics and separationist rhetoric that can follow, analysts have begun to unpack the impact of potentially snapping all business linkages between the United States and China. Most recently, the Fourth Taiwan Strait Crisis prompted Gerard DiPippo in a commentary online and Chris Miller in his last chapter of Chip War to both consider the economic impacts of China invading Taiwan and dragging the United States into a war. Both analyses agree that a military conflict between the two largest economies is terrifying in itself; but because Taiwan serves as a global hub for manufacturing semiconductors, a war would disrupt trillions of dollars in global trade, stall global consumption of electronics, and take manufacturers several years to replace Taiwan’s centrality in chip production.
Separationism struggles to garner momentum because the strand must prescribe severing the beneficial business ties between the United States and China in non-strategic sectors. DiPippo and Miller agree that a future completely devoid of U.S.-China international business would weaken both economies and harm most consumers and producers. And when speculating upon the second order effects, full decoupling proves difficult to predict because the reverberations could overturn supply chain, banking, and labor regimes worldwide. As U.S.-China military friction increases, separationist analysis on the margin will likely grow in frequency and importance.
Restrictionists seek to dramatically cut economic ties with China to inhibit its economy and rise. But not completely. Where separationists envision a world without Sino-American business entirely, restrictionists will still allow deals––if it powers U.S. primacy in a way that also inhibits China’s supposed quest for hegemony. Restrictionists view any economic interaction with China as zero-sum; for if Chinese firms make any economic gains, then China wins, and the United States loses in some way. Restrictionists rely on Manichean rhetoric of good and evil––like Matt Pottinger calling China a “revisionist power” in a system with “Xi playing the role of Stalin and Putin playing the role of Mao”––to indicate a view that China threatens the global economic order and must be stopped.
Restrictionist policies usually hurt the U.S. economy in some way or another thanks to interdependence. To illustrate this point, take the example of when the Trump administration imposed sweeping bans on Huawei out of national security concerns. Though strategically viable, smartphone consumers looking for an affordable alternative lost out on a leading competitor. To make restrictionist policies palatable, proponents need to consistently prove China relies far more on the U.S. economy than it relies on China’s. Restrictionists policies can then weather criticism from those in the U.S. market who appreciate national security concerns.
Centrists seek to pave a middle path. They hope to restrict Chinese firms in the most strategically sensitive sectors while allowing as much harmless business elsewhere. Unlike restrictionists, centrists use more diplomatic rhetoric and offer a less expansive agenda. Centrists recognize China as central to fueling the U.S. economy but possible of supplanting U.S. geopolitical dominance in the absence of caution. In rhetoric, many will adopt Robert Gates’ metaphor of a “small yard, high fence” to describe their approach. The centrist strategy usually focuses on fueling technological decoupling over cutting-edge microchips while allowing for fair economic engagement with China in other flows of trade, finance, legacy tech, or labor and student flows.
Centrist policy is exemplified by the notable rise of the U.S. Commerce Department’s Bureau of Industry and Security “Entity List,” which designates and restricts foreign firms from importing U.S. goods without a license. From 2018 to 2022, the number of Chinese firms restricted from buying certain U.S. goods—most of which were raw inputs and downstream technologies related to national security—more than quadrupled. In what was likely correlated, technology investment flows stifled. From 2016 to 2020, technology-related foreign direct investment between the United States and China declined by 96 percent while research and development (R&D) spending in China surged to record levels.
Distinguishing restrictionist and centrist policies is harder than any other comparison in this framework. While their philosophical approaches and rhetoric both differs, they often rely on the same policy tools such as export controls, tariffs, investment screening, and industrial policy. When new measures arrive, analysts must ignore the rhetoric and determine whether the new policies are restrictionist or centrist in nature.
The distinction does exist. Restrictionists and cooperationists may share the same policies, but they vary in their proposed scope and ultimate impact. So, some historical consensus among analysts is required. Relying on the same types of scalpels, restrictionists will choose ones that cut deeper to carve up more U.S-China business. After a slew of sweeping tech decoupling policies this summer and the most recent October controls, restrictionism appears to be supplanting centrism in Washington. A follow-on article on this topic can be read here.
Max Bessler is a research intern with the Economics Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.
'New Perspectives on Asia' is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).