Resilience and decoupling in the era of great power competition

TORSTEN RIECKE (MERCATOS INSTITUTE FOR CHINA STUDIES – MERICS)

Main findings and recomendations:

The United States and China are engaged in a new cold war. Economic and especially technological ties between the two countries are being ruptured to harm the other side. The outcome is a decoupling of the world’s two biggest economies.

Economic decoupling is part of a power struggle between the US and China for geo-economic and geopolitical dominance.

These tensions represent a radical departure from the spirit of globalization, an approach to policy characterized by the belief in open borders, free trade and a rule-based settlement mechanism.

The era of globalization generated strong economic interdependence between the US and China and created new power imbalances in the global economy. The US in particular controls the nodal points in important value chains and is using them to assert its geopolitical and geo-economic interests, as is China, to a lesser extent.

As interdependence has become a weapon in the geopolitical arena, so its use has reinforced economic decoupling as the rivals have put more emphasis on the pursuit of improved national security.

Decoupling is particularly evident in the semiconductor industry, which is a key sector for technological competition. The US has the upper hand and is trying to cut off China’s global telecoms giant Huawei from the Western technosphere.

The experience of the Covid-19 pandemic has increased the desire for greater economic autonomy and resilience, which is reinforcing the already existing trend towards decoupling.

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