Day one of decoupling? The uneasy future of U.S.-China relations


We have been counting the days of the U.S.-China trade war with July 6 as day 1 (SupChina Access paywall), but today feels like the first day of something new and bigger — day 1 of decoupling, perhaps?

Two big things happened:

  • Bloomberg Businessweek published a story (porous paywall) that says Chinese spies compromised America’s technology supply chain by installing tiny chips in hardware used by the CIA, Apple, Amazon, and nearly 30 major American companies. We have a summary of that report below.
  • American Vice President Mike Pence gave a speech about China at the Hudson Institute, whose mission is “Promoting American leadership and global engagement for a secure, free, and prosperous future.” The speech sets out the Trump administration’s many points of dissatisfaction with Beijing and mentions some of Washington’s counterstrategies.

Pence’s speech on China

Pence’s speech does not really tell China what to do to reduce tensions; rather, the main aim seems to have been to throw down the gauntlet. Together with the security worries that the Bloomberg scoop will cause (whether the story is accurate or not), the downward spiral of U.S.-China relations looks to accelerate.

Also in the news today: CNN reports, “US Navy proposing major show of force to warn China” in the South China Sea; “U.S. warns of new hacking spree from group linked to China,” according to Reuters, a “US judge orders China’s ZTE to two more years of monitoring,” the Wall Street Journal says, and “JP Morgan downgrades China stocks, predicts ‘full-blown trade war’ with US” on CNBC.

Is today the first day of real decoupling between the U.S. and China? Is the hostility going to spread from trade and technology frictions to affect tourist visas, or make life hell for American companies in China, or something worse? In the Atlantic, Uri Friedman has a piece titled Donald Trump’s real endgame with China, which argues that a group of hardliners in the Trump administration such as Peter “Death by China” Navarro are “aiming to do nothing less than ‘decouple’ the U.S. and Chinese economies so that American technologies and industries are less susceptible to Chinese theft and coercion.”

Friedman says that “Trump’s endgame with China may not actually be establishing a fairer trading relationship,” and that for some officials in the Trump administration, “there is no deal. The tariffs are the end point.”

Previously in SupChina’s trade war coverage:

Trade war, day 90: ‘This is political interference, not election interference’