2020 OCTOBER – DECOUPLING CANNOT BE TAKEN LIGHTLY

Trump’s trade war with China started when Trump entered the White House in 2017; it has been escalating and expanding to almost all nations, even to U.S. allies. Since the end of 2019 we have heard about the decoupling of the two nations, a topic that has been brought up repeatedly and has never stopped.

The United States and China have experienced 40 years of intensive economic integration so it is hard to envision a real severance of ties—“decoupling” is a word used to describe this drive toward a growing separation in economic activities these days.

Business leaders are hoping the politicians in Washington, DC, and Beijing will patch up their differences because they are the ones who will be most affected by this decoupling. But the biggest hurdle is the upcoming U.S. presidential election. Trump has already expressed his unwillingness to participate in business negotiations with China.

This decoupling is a fundamental shift in the relationship between the United States and China. Over time the two countries have developed a relationship based on business decisions instead of strategic action. Western powers were hoping China would make democratic changes and also embraced the opening of their market to gain access to the supply of China’s cheap products.

When the supply chain was built in 1980s, the West brought their knowhow and blueprints to help China build up their factories. I have witnessed the impact of these developments over the past 30 years I have been in the apparel industry and how such actions have helped train workers and transformed their technology. The results have been spectacular, not only in terms of the quality built into the garments but also the timeliness; hitting price points for profitability and building trust along the supply chain were achieved.

We know a huge volume of fabrics, accessories, and packaging materials are still being produced in China, even if at this time some of production has been picked up by Southeast Asian countries and even though their skills are nowhere near the quality and standards we have set for the products from China. Also a growing awareness of the need for environmental sustainability has been taken seriously, and production plants are being improved to meet the most stringent industrial requirements. “Rome wasn’t built in a day,” and this adage is something the West should bear in mind.

After Trump was elected in 2017, Wang Qishan, Vice President of the People’s Republic of China, asked David Rubenstein, cofounder of the Carlyle Group, if Trump was a rare phenomenon or a trend. When I asked an American friend a similar question, he told me that Trump was chosen by the American people and time would tell if he is a good president. If worse comes to worst, he will be reelected for a second term and four years later the people of the United States can move on to the next president of their choice.

The situation with China is different as it is an authoritarian country with Xi Jinping in power. His ego is so big that he has expressed his intention to stay in power throughout his lifetime. Actually, his grandiose is so big that it will need the world to contain it.

Since he became the President of China in 2012, Xi Jinping started the Belt and Road Initiative and extended it into Asia, the subcontinent of India, the Middle East, Europe, and South American continent as part of his geopolitical ambitions. He built military bases across the South China Sea, posing a threat to the countries along the sea route. After the struggle of the democracy movement in Hong Kong, he ended it by taking away the autonomy of Hong Kong. He is posing a strong military threat to Taiwan across the Taiwan Strait. He has also imprisoned millions of Uighur Muslims in Xinjiang. On top of all these, he is trying to increase his influence in the United Nations by taking leadership positions on different committees. Last but not least, he has strengthened China’s commitment in enforcing 5G technology, using Huawei to push it through globally.

Now both sides are blaming each another, which is not only threatening the world’s political stability but also the tech-world and how we should manage ourselves daily in our businesses.

One example is the manufacturing of Apple’s iPhone, in which millions of workers are doing the assembling work in China. At this point all the components are still coming from China. On the face of it, China is providing cheap assembling work, which could be taken up by Vietnam and India. But if you look deeper into the problem, the core work is still being produced by China so you can’t take China out of the equation because the supply chain has been built in the last 40 years and is not going away that easily and that quickly.

Now a bill passed unanimously by the U.S. Senate seeks to delist Chinese companies from the U.S. stock exchanges because they don’t open their books to U.S. regulators. China can still bring these Chinese companies to the Hong Kong Stock Exchange; unless all the hedge funds are also banned in Hong Kong, such action will not affect the Chinese listed companies in terms of their access to investors. We have to remember that Wall Street bankers are making a lot of money for listing these Chinese companies, and the adage “money has no smell” applies (namely, the value of money is not tainted by its origin).

All big businesses want to stay neutral in this emerging cold war as the result of the decoupling. During the past 40 years the world has been building toward globalization. If Trump is not  reined in on this matter and if Xi does not tone down his aggression—instead, he could become more ready to share the world than to conquer the world—our world will be heading into something unknown and unfathomable to many of us who don’t have that kind of political ego.