• Tuesday, Nov 24, 2020
  • Last Update : 02:34 pm

A divorce that will take time … if it even happens

  • Published at 11:11 pm May 22nd, 2020

Why the US will not disengage from China in the foreseeable future

The laws of physics, chemistry, or economics are generally agnostic to opinions, nationalist bravado, and political skullduggery. 

As one of the more astute politicians of our times, President Donald J Trump knows this better than most. Thus, even as he blusters around about “ordering” companies -- an ironic move considering it is the Communist Party’s way of doing business rather than that of a free market society -- to move their supply chains from China back to the United States, the president’s electoral support remains strongest in those parts of America where reliance on Chinese trade and investment is some of the most acute: Arkansas, Kentucky, the Carolinas, Texas, and Alabama.

This is not an indictment of hypocrisy alone; intellectual integrity when it comes to trade is about as abundant as moral probity amongst elected politicians of the “religion in danger” stripe. The stark fact is that with $700 billion in trade between the world’s two biggest economies, there are very few nooks and crannies of the economies of China and the US that are entirely isolated from each other.  

To put the $700 billion tag in perspective, it is important to recall that the entire budget of the US federal government is a little over $4 trillion: In other words, the US-China trade is worth more than 15% of the ENTIRE budget of the US government. Put it in a global context, the trade between enterprises of the two countries accounts for almost 4% of the entire exports and imports of all the countries of the world.

And we are not talking about just low-end products like garden trinkets and plastic toys. In fact, many of the basic manufacturers have long moved their origins to smaller countries like Vietnam and Indonesia; rather the supply chains linking the US and China centre around sophisticated electronics like Apple products, 21st century propulsion systems, multifaceted real estate deals, higher education and high finance, and everything in between.  

Snapping these supply chains overnight is conceivably possible since raw force of military might is the ultimate arbiter of fortunes in the short term; but the pain such a move will generate may make the discomfort of the current pandemic pale by comparison given the potential of upturning micro-economies in both countries just as the macro-economic outlook stabilizes in the post-pandemic world.

A population which until very recently had subsistence level existence and is ruled by a communist dictatorship that brooks little dissent or debate is better suited to weather such a trade disruption than a pluralistic, open society, which has generally enjoyed unprecedented prosperity across all social classes since WWII, with the key marker of such prosperity -- cheap consumer goods -- directly underwritten by this bilateral trade relationship.

If the middle and working classes in America are fond of the very affordable consumer electronics that China-based supply chains provide, then the moguls of trade and finance -- people who have disproportionate influence on the fortunes of elected politicians of both major parties in America -- are equally sensitive to their own portfolios that often have significant exposure to China. A representative example is the United States Chamber of Commerce, collectively the biggest outside contributor to the electoral prospects of President Trump’s party and, simultaneously, the most powerful defender of robust and growing trade between the two economic giants on either side of the Pacific Ocean. 

Bashing China works well in Republican Party conclaves and rallies; it also hurts many Republican voters and frightens key Republican donors with the latter subtly realizing that their party needs to be competitive long after Trump’s maximum two terms at the helm are over.

This is not to say that roadblocks will not be put on the highways, seaways, and cyberways of US-China trade, at least in terms of a short time frame. Indeed, there are other economies like India, Vietnam, and the Philippines salivating at the possibility of cornering some of the “China dividend” that may be a byproduct of such a trade disruption.  

Prime Minister Modi is likely counting on his and President Trump’s shared fondness for ethno-nationalism to catch some of the crumbs from that basket of dividends. 

For now, crumbs are all they are likely to be. As any good practitioner of family law knows well, long marriages where assets, liabilities, children, and common interests are deeply entangled are a beast to untangle. Such proceedings go on long even if the divorcing couple, the judge, and the lawyers all plow in single-mindedly towards the same goal. 

Thus, even in the best of scenarios for President Trump’s wishes -- a scenario where all his allies are completely united in the long term to disengage from China -- the economic divorce between the US and China is unlikely to be signed, sealed, and delivered anytime soon. 

Esam Sohail is a college administrator and writes from Kansas, USA. He can be reached at [email protected]l.com.

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