De-risking, de-coupling, de-globalization?

De-risking, de-coupling, de-globalization?

Picture from Ralf Leineweber on Unsplash

Samuel Decker
Exploring Economics, 2023
Poziom: początkujący
Nurt ekonomii: Inne
Temat: globalization, Innovation, institutions, macroeconomics, North-South Relations & Development
Formularz: Essay

De-risking has become a widely used term. It was popularized by EU Commission President Ursula von der Leyen in her speech on China on 30 March 2023. According to von der Leyen, the relationship with China is one of the  "most intricate and important anywhere in the world ", but is currently very unbalanced. It was "increasingly affected by distortions created by China's state capitalist system" (European Commission 2023). And then: “Managing this relationship [...] is a key part of what I would call the de-risking through diplomacy “. (ibid.) The term de-risking was immediately taken up by the White House and was also included in the G7 communiqué in May 2023. Reflecting this trend, the German government's new China strategy too states: "The German government is working towards de-risking economic relations with China" (Bundesregierung 2023, translation by author).   

De-risking is supposed to replace the more conflictive term de-coupling. "De-risking: yes, de-coupling: no. This formula also explicitly applies to China," said German head of government Olaf Scholz during government consultations with Chinese ministers in the summer 2023 (Fischer 2023). The term de-risking can be seen as one element of a strategy aimed at discursively reframing the trade policy confrontation with China. This confrontation has mainly been driven by the US in recent years and received initially cautious, but later growing support from the EU.

The new trade war

The targeted economic isolation of China, particularly in the high-tech sector, is an expression of the growing efforts of the US and the West to slow down China's economic rise. While the strategies of the Bush and Obama administrations primarily followed the logic of foreign and military policy, which focused on 'controlling the oil tap' or the military encirclement of China in the Western Pacific ('pivot to Asia'), under Donald Trump, a systematic trade war was initiated (Solty 2023). Since 2018, the Trump administration has imposed sanctions and punitive tariffs on China. These sanctions focused primarily on Chinese technology companies such as Huawei, ZTE, Tencent and Bytedance (Schmalz et al 2022, 430). The Biden administration is continuing this policy and has developed new approaches to industrial policy, as already evident in the Innovation and Competition Act of 2021. At the same time, the European Union has initiated a prozess of realigning its relations with its 'systemic rival' China since 2019. With the Inflation Reduction Act and the CHIPS and Science Act in the US, China's new industrial policy and technological decoupling reached a new level in 2022; the EU followed suit in the first half of 2023 with the Green Deal Industrial Plan and its own Chip Act.

Tipping point in geopolitics

For its part, the People's Republic of China has responded with punitive tariffs. The strategic promotion of domestic supplier structures and endogenous technology development has been an integral part of China's development strategy since the Made in China 2025 plan of 2015 at the latest. Already beforehand - since the global financial crisis in 2007 - China had been making increasing efforts to move up the value chain, strengthen the domestic market and break up the one-sided export model. We are therefore not actually dealing with a new development - the crucial point, however, is that the 'tipping point' at which China's economic power exceeds that of the USA and other Western countries has now arrived. As early as 2019, China overtook the USA as the largest exporting nation and became the world's second-largest investor (Schmalz et al 2022, 439). In 2018, China also overtook the USA and the EU in terms of global gross domestic product. China's respective share in 2021 was around 20%, while the EU and the USA each accounted for around 14% (Janson 2023). 

China has developed from the 'workbench of the world' into a hyper-competitive economic power. Chinese companies are leading in various key areas such as 5G mobile technology, artificial intelligence, cloud computing and big data; Chinese companies are ahead in the development of high-speed trains, photovoltaic systems, wind turbines, e-batteries and other environmental technologies (Solty 2020).  Only in specific sectors such as the manufacturing of high-end microchips does China remain dependent on Western, particularly US, imports. The policy of  'de-risking', which ultimately represents a policy of strategic decoupling from the Chinese economy, is aimed at precisely this area - the trade war is above all a chip war.

Capitalist de-globalization?

Does this decoupling from China imply de-globalization? In general, we can speak of a shift and diversification of global value chains. The internationalization of Chinese capital, for example, is continuing unabated, but the target countries for investment are increasingly countries in the Global South. Even though there is a lively debate reshoring, so far we have at best observed a "stagnation of internationalization or a shift in transnational production networks" (Schmalz 2022, referencing Butollo & Staritz 2022, translation by author).

However, it should be noted that these developments are only just at their beginning. Once the geopolitical tipping point has been reached, things can quickly start to unravel. The war in Ukraine is acting like a catalyst. The critical China scholars Stefan Schmalz, Helena Gräf, Philipp Köncke and Lea Schneidemesser (2022, 450) therefore describe a "stronger fragmentation of the global economy, with regional blocs - e.g. a Western-Japanese conglomerate versus a Sino-Russian bloc - each with closely interlinked economic cycles and technological innovation centers" as a "realistic development scenario" (ibid., translation by author). It is very likely that we are indeed at the beginning of a capitalist de-globalization - although the relationship between continuity and rupture in this new phase of capitalism is difficult to predict. The internationalization of capital and imperialist economic strategies will continue, but not under the unilateral domination of one superpower. Stefan Schmalz and co. therefore also speak of a "contested globalization" (ibid.).

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