The U.S. goal of bilateral decoupling from China will not only fail in a globalized marketplace, but the tools waged by the U.S., paired with its go-it-alone approach to try to contain and isolate China both economically and technologically, will not induce the changes Washington seeks from Beijing.
There are two putative goals of the current US administration for proactive policy “decoupling” between the U.S. and China. The first is to reorient U.S. firms’ supply chains away from China to U.S. sources, which would have the effect of helping to achieve President Trump’s principal trade policy goal with China: elimination of the bilateral U.S.-China merchandise trade deficit.
Besides, many Americans believe that the U.S. market-oriented system is not one—with very limited national security exceptions—in which Washington should direct where our private sector companies should or should not make investments or with whom to engage in international trade. In this regard, for the U.S. investors who have had a rough time of it in China, it is the companies themselves who bear the costs of making bad investment decisions.
Nevertheless, does this mean that China will always remain so and that U.S. as well as other businesses operating in China will not alter and diversify their geographic footprints in some fashion in an evolutionary process? No. For two reasons.the rise in Chinese wage rates as well as the pronounced risks associated with corruption, state interference, and “fuzzy” property rights, are already prompting foreign businesses in China to shift, in part or in whole, to other locales around the world.
The other set would involve the use of “non-price mechanisms” such as the imposition of quotas ; the revocation of permits required by Chinese entities to conduct activities in the U.S. ; or outright prohibitions . Second, Trump’s placement of tariffs on US imports from native Chinese operations is imposing costs on US-located firms who rely on such goods as inputs in their US factories to produce end-products either sold in the US or exported from the US . The news media is replete with stories of US manufactures trying to seek exemptions from Washington for subjecting their imported Chinese intermediate goods to US tariffs.
While the pace and depth of these potential actions have certainly quickened because of the objective to pursue decoupling, the fact is there have long been concerns about the quality and independence of the audits and financial information about U.S.-listed Chinese firms. These have been driving worries that American investors who are not fully informed about the fundamentally weak nature of corporate governance of Chinese firms would be subject to adverse risks.
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