When the pandemic eventually subsides, ‘normal functioning’ of the economic relationship between the two largest economies will be increasingly different to what it was before, according to a new report from the US Studies Centre.

Dr John Lee, report author and Non-Resident Senior Fellow, explains, “COVID-19 has strengthened the US resolve to distance itself from China, but it will be a messy economic separation rather than a divorce.”

The report outlines why shifting supply chains out of China will be difficult or impossible when it comes to the production of traditional products, but the advanced and high-tech sectors will be the most ‘disruptive battleground’.

Lee added, “the list of ‘strategic’ or ‘critical’ goods and services will only grow while increased US restrictions against companies like Huawei is only a small taste of what is to come.”

The new report explores what “the three Ds – decoupling, disentangling and diversification” will look like and the likely US playbook to enhance the resilience of its economy and supply chains and win an economic competition in areas which will shape the key determinants of material and national power into the future.

There will be some areas of continuity. Lee notes, “even at the height of economic tensions, foreign direct investment into China continued to increase by three per cent annually and a member survey of American businesses in China in 2019 revealed that 87 per cent had not relocated supply chains away from China and had no immediate plans to do so.”

But there will be significant moves to restrict the access of Chinese firms to US capital, US markets, and US innovation and know-how in key sectors.

Europe will become a key battleground and the EU will come under American and Chinese pressure to make difficult decisions as the US-China economic relationship becomes more fraught.

Join the United States Studies Centre for a closer look at this report and put questions to Dr Lee at a webinar on Thursday, 7 May 2020 from 11am – 12pm.

Key points

  • Despite much attention focused on the disruptive economic approaches of the Donald Trump administration towards China, it is the latter which remains far more restrictive, self-regarding, and predatory.
  • There is growing discussion about decoupling, disentangling and diversification away from China to ensure a more self-reliant and resilient United States that is less dependent on the decisions of the Communist Party.
  • Many traditional and current generation products for Asian consumers – even if produced by American firms - will continue to be made or assembled in China.
  • However, there is likely to be a trend towards producing products for American consumers in America or in geographically proximate economies such as Mexico.
  • The emerging and most disruptive battleground will be in the enabling technology sectors neatly captured in Beijing’s Made in China 2025 blueprint.
  • In these sectors, the US will increasingly develop approaches to deny or restrict Chinese firms access to capital, markets, and know-how.

View report

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