Oct 28, 2023 - Economy

Why it’s so hard for the U.S. to derisk its China relations

Illustration of a United States quarter puzzle piece and a Chinese Yuan puzzle piece

Illustration: Eniola Odetunde/Axios

National security has both an economic and a military component, and U.S. national security adviser Jake Sullivan is convinced that laissez-faire economic policies have made his country less secure — an opinion that is shared by most lawmakers on both sides of the aisle.

Why it matters: How the U.S. reacts to this state of affairs will have profound consequences for whether global economic peace and prosperity can endure. There are no easy solutions.

Driving the news: Sullivan has an important essay in the most recent edition of Foreign Affairs, out this week.

  • The Cold War "was waged between two superpowers that had very low levels of interdependence," he writes.
  • "Today's competition is fundamentally different. The United States and China are economically interdependent. The contest is truly global, but not zero-sum."

The impact: "There is no plausible way to completely unwind this interdependence, without causing irreparable harm to American society," Johns Hopkins political scientist Henry Farrell explains in his own Foreign Affairs article, co-written with Abraham Newman.

Flashback: In the mid-1980s, fully 40% of U.S. exports required government approval, and almost all such approvals were granted only for trade with other "free countries."

  • Then, after the fall of the Berlin Wall and the end of the Cold War, a broad deregulatory agenda opened up global trade, most notably with a China growing at breakneck speed.

Where it stands: The U.S. still has — and still uses — its Cold War tools, such as the Defense Production Act. But Farrell and Newman make the case that those tools are ill-suited to the current moment.

  • Both essays try to find a new solution of "derisking" without decoupling, but Farrell in particular is not particularly optimistic.
  • "We don't have a good understanding of the security risks of a global economy," he writes on his Substack. "We don't have a good understanding of the tools we can use to address them, or what the unexpected consequences of using those tools might be."
  • There's no bipartisan consensus here. Republicans seem happy to just move back to the old Cold War stance, sponsoring legislation to take authority over export controls away from the Department of Commerce and give it instead to the Department of Defense.

The bottom line: Economic imperatives compel the U.S. to keep the benefits of trade with China while reducing major national security risks. But when economics meets politics, usually politics wins.

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