Decoupling From China

Surreptitiously, by design, globalisation shipped manufacturing, wholesale, from Western countries to China. The resulting rust belt in the U.S. delivered economically disenfranchised workers who fuelled the rage that blindsided the establishment and delivered Trump the US presidency. Each day, Trump delivers to that rage, and the world watches the US slide down the abyss of social collapse.

The same economic mugging of workers in the U.K. yielded the protest vote called BREXIT and the dislocations that follow.

Australia also exported its manufacturing industry, and almost all value-add processing, to China to the extent that Australia now exports unprocessed minerals and a few bottles of wine.

Had the US and Australia invested in industries for the future, instead of short-sightedly pursuing globalisation, there would be no calls today for decoupling, and no regional tensions involving China. Krugman, the inventor of globalisation, has recently admitted that globalisation has had a disastrous impact!

A steady stream of experts are publishing articles in response to calls to decouple from China. With little variation in theme and substance, each article declares that decoupling from China would be economically catastrophic; it would upset established trade integration the authors conclude. Indeed, that is what decoupling means.

Yet, these authors think that exporting unprocessed minerals somehow will guarantee Australia’s future in the age of the 4th Industrial Revolution. America’s rust belt driven social collapse will not go away until someone deals with the complete gutting of US industry. And sorry, but no, focussing on new technology and leaving manufacturing to China is not the answer: China has devoured global manufacturing and is now seeking to dominate AI, 5G, and all other advanced technologies. To ensure that they achieve this, they have embarked upon a relentless global campaign of industrial espionage and IP theft.

In few, if any, of those articles, warning against decoupling from China, do the authors address the significant systemic risk associated with global supply chains centred on China. China is the largest trade partner for 120 countries, and exports 42% of manufactured products.

China has repeatedly demonstrated that it will leverage its grip over global supply chains and weaponise trade with any and all countries. 

China has unilaterally defined a series of red-lines; examples of these red-lines include the illegal seizure of most of the South China Seas; opportunistic, hostile encroachments along the border with India and Bhutan; criticisms of human rights abuses; and even Australia's call for a pandemic enquiry.

Without exception, countries are warned not to cross these red-lines. Concerns and objections China declares are due to wrong thinking, cold war mentality, or some other defect that the aggrieved country needs to rectify so as to maintain harmonious relations with China.

However, what China means by harmonious is subservience to its belligerence, industrial espionage, IP theft, human right's abuses, and unconscionable behaviour.

To help those countries that can't understand, China engages in 'hostage diplomacy'. For example, to help Canada understand that it needs Huawei for 5G it arrested two Canadians. Likewise, it has detained two Australians for several insubordinations including Australia's support for a pandemic enquiry.

Following the recent Czech delegation to Taiwan, are there any Czech Republic citizens confident about travel to China?

“The impacts of coercive diplomacy are exacerbated by the growing dependency of countries on the Chinese market. The economic, business and security risks of that dependency are likely to increase.”, conclude the authors of the ASPI report; ‘The Chinese Communist Party’s coercive diplomacy’, Sept. 2020.

Also, the authors mostly frame the issue as a US/China rivalry. But, China’s attempt to seize the South China Seas, its global campaigns of industrial espionage, IP theft, weaponising trade, hostage diplomacy, and hacking affect all countries. The authors appeal to the international rules based order that has facilitated international trade and development, but conveniently ignore the fact that China has no interest in complying with international laws and judgements (12 July 2016, The Permanent Court of Arbitration ruled against China’s claims over the South China Seas). International trade and the smooth functioning of supply chains depends upon a consensus between countries involved. However, China pursues an opportunistic zero sum approach, for example through its BRI programme, through Chinese market access restrictions, and demands on foreign companies to surrender IP if they want to do business in China. (American Affairs Journal, Aug 2020, Volume IV, Number 3).

Further, the authors completely ignore the massive human rights crisis in Xinjiang which is now being extended into Tibet and Mongolia; the increasing surveillance state repression over most of China and now Hong Kong; the large scale ongoing forced organ harvesting programme targeting ethnic minorities and religious groups; and the fact that many western company’s Chinese supply chains involve slave labour. They ignore all of this because moral issues have ‘no’ relevance in supply chains, and they seem to think that the CCP can be reasoned with on those issues by someone else — get real! There would be a more predictable and beneficial environment for international trade if the world had a more socially responsible outlook to international affairs instead of the moral bankruptcy that has dominated to date.

However, a Gartner, Inc. survey of 260 global supply chain leaders in February and March 2020 found that 33% had moved sourcing and manufacturing activities out of China or plan to do so in the next two to three years. This demonstrates that decoupling is possible and companies are pursuing that direction.

The global technology and consumer electronics sectors are especially reliant on China’s infrastructure and specialised labor pool, neither of which will be easy to replicate. These strategically significant capabilities need to be rebuilt in the West and other countries recently enrolled as alternative suppliers to China. To this end, several countries are co-operating to rebuild capability outside of China, and others, such as Japan and Taiwan, are offering incentives to their China based companies to move away from China. There will be a transition period; however, there is long term benefit in building supply chain resilience, and returning strategically important industrial and technology capabilities to home base.