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

The U.S: President Joe Biden with European Commission Ursula von der Leyen during the G-7 Summit in Japan.
| Photo Credit: ANI

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.

What is ‘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.

Why 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.

In this context, a watered down version in the form of de-risking could better achieve the objective of getting Europe on board the U.S’s efforts to counter China. It is therefore no surprise that the U.S’s recent articulation of its de-risking approach repeatedly draws references to the European Commission President Ursula von der Leyen’s milestone speech on “EU-China relations” to the Mercator Institute for China Studies and the European Policy Centre on March 30. In her speech, Ms. von der Leyen stressed that the EU’s strategy to China will be based on de-risking. This was a precursor to her visit to China in April, along with the French President Emmanuel Macron, with the Russia-Ukraine war as the main agenda. In fact, China policies of the U.S. and the EU have been witnessing a significant convergence of late — recent developments may have only triggered the Trans-Atlantic consensus on de-risking vis-à-vis China.

What could be the geopolitical ramifications of de-risking?

The U.S. efforts to keep its allies closer in its geopolitical rivalry against China by adopting the path of de-risking has already won a significant victory in Japan at the G-7 summit. The leaders at the summit declared that they will coordinate their “approach to economic resilience and economic security that is based on diversifying and deepening partnerships and de-risking, not de-coupling”. China has expressed its scepticism to the West’s de-risking approach, portraying it as a façade to the decoupling agenda. Moreover, China has expressed its disapproval in painting China as the actor responsible for heightening geopolitical risks. According to China, the real source of risks is the U.S., which it alleges to have created instability across the world by pursuing political and military interventions and perpetuating a Cold War mindset.

The continuing emphasis in de-risking to diversify supply chains away from China demonstrates that the Trump-era spirit of decoupling is being carried forward, albeit with some changes. This could also make the West’s moves to counter China’s rise much more sustainable by facilitating a united front among allies. However, its effectiveness could be questionable, as it has dialled down U.S’s rhetoric against China which could be read by the latter as a sign of its adversary’s weakness. Though countries like India will stand to benefit from de-risking by leveraging its benefits like attracting supply chains and confronting China’s aggressive moves, it could also come at a cost. With the Russia-Ukraine conflict and the consolidation of the European alliance being the major triggers behind this shift, de-risking could lead to U.S. focus on the Indo-Pacific being diluted, at least for the short term.

Dr. Anand V. is Assistant Professor (Senior Scale) at the Department of Geopolitics and International Relations, Manipal Academy of Higher Education