Decoupling vs. De-Risking

The U.S. President Joe Biden with European Commission Ursula von der Leyen during the G-7 Summit in Japan. Ursula von der Leyen is the initiator and flag-waver of the new construct of de-risking. | Photo Credit: ANI

De-risking was first proposed by European Commission President Ursula von der Leyen as an economic security strategy of the European Union. The narrative was quickly embraced and championed by the United States, with President Joe Biden, Secretary of State Antony Blinken, Treasury Secretary Janet Yellen and National Security Adviser Jake Sullivan picking up the term and emphasizing de-risking with respect to China on separate occasions.

On the surface, de-risking seems more moderate and less confrontational than decoupling, but in essence it isn’t really any different.

According to the U.S. government's narrative, de-risking connotes “protecting a small portion of advanced technologies that are critical to U.S. national security.” The other term, decoupling, under the Biden administration has evolved. It now has extended implications, from general decoupling to precision decoupling, focusing on erecting a “small yard with high walls” to keep key high-tech technologies out of China’s hands. But this is no different from the current U.S. definition of de-risking.

At best, the concept of de-risking is as vague as it is confusing, as it will be entirely up to the U.S. to define what areas are risky. In recent years, the so-called “protection of national security” has become a cover for the U.S. to protect its own selfish interests. The U.S. has repeatedly suppressed Chinese companies on the grounds of endangering U.S. national security, and even normal China-U.S. cooperation in finance, investment and people-to-people exchanges have been included in the category of such dangers.

In terms of intent, the reason the U.S. seized upon de-risking — and now actively advocates it — is not to change its economic and trade policy toward China but to alleviate the domestic and diplomatic predicaments encountered by the policy that was called decoupling. At home in the U.S., the business community has taken issue with the government’s idea of decoupling from China and still wants to preserve a business presence and healthy ties. This year saw the senior executives of Apple, JP Morgan Chase, Tesla and other top U.S. companies make trips to China, sending the message that the U.S. business community wants to continue to expand there.

The Semiconductor Institute of America has made it clear that because China is its largest market — and despite the alleged national security concerns of the U.S. government — American semiconductor companies still crave the Chinese market. On the foreign affairs front, U.S. allies also have concerns about decoupling. The EU’s de-risking rhetoric is intended to ease European countries’ resistance to decoupling and develop an economic strategy toward China independent from the United States. Rather than signaling a change in its economic and trade policy, the U.S. is making a case for de-risking — more moderate, veiled language designed to placate the business community and coordinate with its allies. Nevertheless, the ultimate goal of containing China’s further development still stands.

Recent moves by the U.S. show that decoupling is ongoing. On June 6, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanctioned five Chinese companies and Chinese citizens for alleged ties to Iran’s ballistic missile program. On June 9, the U.S. Department of Homeland Security added two Chinese companies to its Uyghur Forced Labor Prevention Act Entity List, citing Xinjiang-related issues. On December 12, the U.S. Department of Commerce placed 31 Chinese companies on the Entity List for “procuring U.S. products” that support China’s military modernization, violate human rights, help Pakistan develop ballistic missiles and violate U.S. export controls.

During his recent visit to China, Blinken said nothing about the Biden administration thinking about making adjustments to U.S. tariffs imposed on Chinese goods under the Trump administration. Regardless of the American rhetoric, there seems to be no change in the country’s strategy of encirclement, suppression and containment of China.

After his visit, Blinken said the U.S. does not seek to contain China economically and wants to see economic growth and success in countries around the world, including China. He underscored what he said was the profound difference between decoupling and de-risking for the United States and many other countries. The U.S. appears to be expressing a desire for better relations and better international economic and trade order. While it has talked the talk, we need to see whether it will walk the walk.

What the U.S. does going forward will determine whether its de-risking rhetoric will really serve to advance the development of China-U.S. economic and trade ties or ease the pressure on other countries to take sides.