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Implications of US De-Risking from China

"De-risking" has emerged as a prominent term in discussions involving the United States and its relationship with China. Unlike decoupling, de-risking does not call for a complete rupture; instead, it seeks to mitigate risks while maintaining some level of economic engagement.

China's economic prowess is too substantial to ignore. As the world's largest manufacturer, its output surpasses that of the combined factories of the US, Germany, and Japan. A complete decoupling could lead to shortages of essential goods and spike inflation, thereby disrupting the global economic order.

A full decoupling would force countries to choose between the US and China, risking a deepening divide in the global economic landscape. Given China's role as the primary trading partner for many nations, decoupling could inadvertently enhance China's influence and global standing.

Three main objectives underpin the de-risking strategy:

Preserving Technological Leadership: US policymakers are concerned about China's rapid advancement in sectors such as artificial intelligence (AI) and quantum computing. De-risking involves restricting China's access to cutting-edge US innovation while allowing access to less advanced technology.

Curbing Chinese Military Progress: With China's military capabilities growing rapidly, de-risking extends to national security concerns. Preventing China's access to advanced US military technologies is crucial, particularly in areas like dual-use microchips that have both civilian and military applications.

Diversifying Critical Goods Production: The COVID-19 pandemic exposed the risks associated with overreliance on China for critical goods. De-risking entails shifting the production of essential goods and materials to US soil, ensuring a secure supply chain even during crises.

US de-risking efforts are concentrated on specific sectors, including information technology, energy, and biotech. In each of these sectors, US policymakers are employing a range of tools to achieve their objectives:

Information Technology: De-risking in the tech sector, including semiconductors, AI, and quantum computing, aims to prevent China from dominating areas with both civilian and military applications. Export controls on advanced technologies and investment restrictions on Chinese firms are key tools here.

Energy Security: Recognizing the threat of clean-energy supply chains being weaponized, de-risking in the energy sector focuses on safeguarding critical materials, technologies, and equipment needed for the transition to a net-zero economy.

Biotechnology: De-risking in biotech involves preventing China's access to critical knowledge and data transmission. This presents unique challenges, as blocking digital transfer of data is far more complex than controlling physical exports.

De-risking necessitates a revamp of US economic policy tools. Export controls, a staple during the Cold War, are being revived to hinder China's technological advancement. Industrial policy is making a comeback as well, with initiatives aimed at supporting US companies and controlling investments.

US cooperation with allies is another facet of de-risking. However, this collaboration is not without challenges, as economic interests often conflict with security concerns. While US de-risking strategies align with those of its allies, tensions may arise due to economic competition.


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