Coronavirus News Asia

What US-China decoupling does and doesn’t mean


Controversy swirls around Covid-19 and China but on one point there’s general agreement: America’s experience with the coronavirus is likely to hasten its “decoupling” from China. At least some of the complicated supply chains that link American companies and Chinese manufacturers will be unwound.

It will happen fastest in the field of medical supplies.

Shortages of masks, swabs, ventilators and other necessities have taught the United States it cannot rely on deliveries from overseas that become uncertain in time of crisis. For these essential items it must have domestic suppliers.

In other industries, too, companies will be rethinking their sources of supply. China became the world’s factory because it had the lowest cost of production but consulting firm A.T. Kearney expects companies to “spread their risks, as opposed to putting all their eggs in the lowest cost basket.”

The threat of future crises, A.T. Kearney argued, “will compel companies to restructure their global supply chains with an eye toward increased resilience, as well as lower risks and costs, as resilience is the key to operating profitably in the face of ongoing disruptions.”

The big question about this decoupling process is, “How far?” How far along are we? How far are we likely to go? Will there be any appetite in China for what America’s farmers and ranchers produce?

President Donald Trump has said, “We could cut off the whole relationship.” Could it really go that far?

China has effectively been decoupling from the US for years. That’s what a lot of the intellectual-property theft has been about: import substitution. More than one American company has lost business to copycat Chinese competition.

In agriculture, China has been diversifying its suppliers, intent on never being as reliant on America for products like soybeans as it once was.

Yet it’s easy to overstate how far decoupling has already gone. A.T. Kearney observed a marked move last year to production in other low-cost countries, probably in response to increased US tariffs on China. But a significant amount of this appeared to be trans-shipments – Chinese-made goods being sent to the US via Vietnam and Mexico to avoid the tariffs.



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