Within a couple of years, Americans turned on the Chinese. Bands of white workers burned down Chinatowns across the West. Chinese miners and field hands were massacred in Wyoming, California, Nevada and Washington. In 1882, President Chester Arthur signed into law the Chinese Exclusion Act, which banned Chinese laborers from the country. It would stay on the books for 61 years. For many Chinese, the romance with the United States was short-lived as well. Very soon, Chinese pamphleteers were alleging that American missionaries harvested the eyes and hearts of Chinese orphans on giant ships off China’s coast. Western missionaries and Christian converts were murdered in China, too.
Just a few years ago, the United States was as high on China as Seward was in 1871. Think tanks in Washington published papers on the “G-2,” the idea that the United States and China would together solve the problems of the world. “Chimerica” and “Chinafornia” became buzzwords for this new “great harmony” that was concretized in the flow of hundreds of thousands of eager Chinese students studying in high schools and universities across the United States.
But just like it did in the 1870s, the pendulum of U.S.-China relations is swinging again. Where “engagement” with China was once the leitmotif, “decoupling” has replaced it today. And decoupling — galvanized by President Trump’s Twitter feed, his trade war and China’s bumptious response — is happening fast.
Last month, much ink was spilled trying to determine whether Trump had the authority to “hereby order” U.S. companies to leave China, as he did in a Twitter storm on Aug. 23. But the debate missed the point. What U.S. presidents, no matter who they are, say has an impact. If U.S. companies realize that the U.S. government is not going to support their investment in a certain country, they will make other plans. It may be challenging for some, but it’s already happening.
Look at cars. For years, American automobile manufacturers saw China as the engine for their growth. But now, reports industry expert Michael Dunne, many foreign carmakers in China are rewriting their long-term strategy in China. There are several reasons for this. Domestic demand in China is soft — so soft, in fact, that General Motors, which has made billions in China over the years, reported that its income in the second quarter of 2019 dropped to $235 million, the lowest in eight years.
But the two other factors are directly related to decoupling. First, as Dunne notes, “companies need to imagine a future in which their operations in China are largely disconnected from their other global activities.” Because it is not just the United States that is decoupling from China; China is returning the favor. Starting next year, China will be rolling out a social credit score for companies that will force all firms, including U.S. ones, to “play by distinct Chinese rules.”
Second, Dunne pointed out that Trump’s tariff war has targeted auto parts made in China by U.S. companies for export back to the United States. GM, for example, wants to make electric Cadillacs in China for export to America. But with a trade war, that may no longer be viable.
Decoupling is not just a trade issue; it’s a financial one, too. The Financial Times recently reported that two U.S. senators are demanding that one of America’s biggest government pension funds reverse a decision that could channel up to $50 billion into companies listed on China’s stock exchanges. Sen. Marco Rubio (R-Fla.) and Sen. Jeanne Shaheen (D-N.H.) told Michael Kennedy, chairman of the Federal Retirement Thrift Investment Board— which manages $578 billion in pension money — that the fund would be using “the paychecks of members of the U.S. Armed Services and other federal government employees” to underwrite Chinese state-owned firms.
Decoupling also means literally dismantling the physical connections linking the United States with China. The Wall Street Journal reported on Aug. 28 that U.S. officials are seeking to block an undersea cable backed by Google, Facebook and a Chinese partner that could strengthen Internet connectivity between the two countries. This is happening even though “ships have already draped most of the 8,000-mile Pacific Light Cable Network across the seafloor” between Hong Kong and Los Angeles. The Justice Department opposes the cable because of concerns that China’s spy agencies could use it to facilitate espionage operations in the United States.
There’s legitimate debate about the success of Trump’s trade war and China policy. But there should be no doubt that the tectonic plates that have undergirded U.S.-China relations for decades are shifting now, as they did in the middle of the 19th century. The architecture of Washington’s relationship with Beijing is crumbling, and so far no alternative model is emerging to replace it.