By Gabriel Yossick
The short answer: US-China relations. The dynamic between these two nations is remarkably complex. Both global powerhouses share mutual interests across politics, economics, and security, especially influencing each other's economic landscapes. A prime indicator of this lies in their robust trade ties. China stood as the US's third-largest goods export market in 2020, with their main exports being electrical machinery, agriculture, and services. Conversely, China was the US's leading goods import supplier, mainly in machinery, toys, sports gear, and furniture. Furthermore, the US holds a total of $136.4 billion in foreign direct investments (FDI) in China, emphasizing the depth of their bilateral relationship.
Despite this, numerous factors may contribute to the probable demise of their significant trade pact, notably political disparities and security breaches that revolve primarily around Taiwan and territorial disputes concerning the South China Sea. Security breaches, referring to China's extensive surveillance practices and disregard for Intellectual Property Rights. As these transgressions become more apparent, the US has acknowledged the excessive dependence of its economy on China, generating frustration among American citizens and policymakers alike.
For policymakers, the concept of distancing from China is bipartisan, yet each political party holds distinct reasons for doing so. Democrats are chiefly troubled by human rights violations, South China Sea disputes, and security breaches. Conversely, Republicans are more focused on the impact of trade with China on the blue-collar job market, often advocating for domestically produced goods labeled as "American Made”. Yet the trade relationship with China holds immense importance due to their ability to supply goods at a significantly lower cost in large quantities, which goes against the republican stance. The harsh reality is that China's capacity for mass production exceeds that of the US, given their different labor practices and cost structures. China's ability to offer goods at lower prices is not matched by the US due to higher wages and additional benefits required for American workers because of the ethical standards we have in place. Both parties have distinct motivations for disengaging from China: Democrats aim to uphold US human rights standards, while Republicans prioritize boosting American job opportunities. Despite these differing priorities, both share an underlying common goal.
For American citizens, a substantial increase in the prices of household consumer goods would deeply upset our domestic economy. However, reducing trade with China would result in a general uptick in consumer goods prices, leading to a decline in consumer spending. As famously expressed by Nixon in Foreign Affairs magazine, "We simply cannot afford to leave China." This can be troubling if we have political disputes with China, which is the biggest threat in 2024.
Trade agreement negotiations require a strategic approach. A complete withdrawal from China wouldn't serve the best interests of the US economy, and there are no indications that suggest such a drastic step despite it being something Democrats and Republicans can agree on to a certain extent. A gradual, economically fair separation is essential to maintain domestic economic stability in the United States and maintain peaceful relations. However, the foremost priority should be mutual acknowledgment by both countries regarding security concerns.
This includes addressing the reduction of surveillance in China, especially concerning the non-Chinese individuals, and complying with Intellectual Property rights. While China has the right to surveil visitors within its borders, evidence reveals continuous surveillance once a device connects to Chinese networks. Moreover, technological products imported from China to the US may contain lingering surveillance mechanisms, aiming to gather sensitive information. To address these concerns, the US could limit the activation of technologies imported from China. For instance, when importing phones, the US could procure components like aluminum casing, screen glass, and packaging materials, while manufacturing the hardware in a secure domestic facility and assembling the phone within the US. While this might incur short-term expenses, it promises substantial long-term security benefits.
President Biden is reportedly planning to enact dense regulatory filing aimed at advanced technological equipment manufactured in China next year. This includes constraints on semiconductors, chip-making equipment, and components used in supercomputers. Framed as a national security initiative, this action is anticipated to significantly impact China's economy while emphasizing the US's prioritization of security on a global scale. These measures mark an initial step towards restructuring the US-China trade agreement and are expected to wield substantial influence. However, the issue necessitates greater strategic action and prioritization. It is imperative to proceed with logical deliberation rather than impulsive decision-making. Both parties should carefully consider the economic impacts of disengaging from China and should strategize a more thoughtful and gradual transition out of specific Chinese sectors.