The Biden and Trump administrations both gave lip service to paring away U.S. supply chains from China. A closer look shows China retains a vice-like grip.
“For the best part of two decades, China claimed the lion’s share of new foreign-investment projects in Asia. Last year it received less than India or Vietnam,” The Economist reports. “Dig deeper, though, and you find that America’s reliance on China remains intact. America may be redirecting its demand from China to other countries. But production in those places now relies more on Chinese inputs than ever. As South-East Asia’s exports to America have risen, for instance, its imports of intermediate inputs from China have exploded.
The report continued: “Supply chains have become more complex, and trade has become more expensive. But China’s dominance is undiminished.”
In some cases, Chinese goods have been repackaged in third countries and sent to the U.S. in a manner that avoids U.S. tariffs.
Smaller countries see being the middleman in the U.S.-China supply chain as an important source of jobs and investments.
Biden Executive Order Unlikely to Completely Decouple From China
Joe Biden’s latest executive order banning U.S. investments in key sectors that can help China’s military-industrial capacity will no doubt fall short.
The executive order seeks to curtail investment by U.S. firms in Chinese semiconductors, microelectronics, quantum computers, and certain artificial intelligence applications.
China retaliated against increasing export controls with those of its own last month. It cut off the flow of rare earth metals like gallium that the Defense Department deems as essential. It produces 80% of the world’s gallium and 60% of its germanium, according to the Critical Raw Materials Alliance (CRMA).
At this stage, it could be next to impossible to completely decouple the U.S. from Chinese supply chains.
“The timing of this announcement from China is not coincidental, given chip export restrictions announced by the Netherlands amongst others,” Colin Hamilton from the investment firm BMO Capital Markets told the BBC. “Quite simply, if you won’t give us chips, we won’t give you the materials to make those chips.”
China Decoupling is ‘Phoney’
The Biden administration is desperate to avoid a confrontation with China in the wake of the spy balloon escapade in February, but critics say that the administration is too soft.
“Much of the decoupling … is phoney. Worse, from Mr. Biden’s perspective, his approach is also deepening the economic links between China and other exporting countries. In so doing, it perversely pits their interests against America’s. Even where governments are worried about the growing assertiveness of China, their commercial relationships with the biggest economy in Asia are deepening,” The Economist said.
Biden’s executive order comes at a time when China is becoming more hostile to outside investment.
“The message it sends to the market may be far more decisive,” Elaine Dezenski, a senior director at the Foundation for Defense of Democracies, told NPR. “U.S. and multinational companies are already reexamining the risks of investing in China. Beijing’s so-called ‘national security’ and ‘anti-espionage’ laws that curb routine and necessary corporate due diligence and compliance were already having a chilling effect on U.S. foreign direct investment. That chilling now risks turning into a deep freeze.”
John Rossomando is a defense and counterterrorism analyst and served as Senior Analyst for Counterterrorism at The Investigative Project on Terrorism for eight years. His work has been featured in numerous publications such as The American Thinker, The National Interest, National Review Online, Daily Wire, Red Alert Politics, CNSNews.com, The Daily Caller, Human Events, Newsmax, The American Spectator, TownHall.com, and Crisis Magazine. He also served as senior managing editor of The Bulletin, a 100,000-circulation daily newspaper in Philadelphia, and received the Pennsylvania Associated Press Managing Editors first-place award for his reporting.
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