Decouple: An unlikely scenario but what’s the harm?

Despite all the rhetoric, if anyone cares to look, they will see that, year on year and month on month, trade between China and the USA is increasing. Don’t believe me? Check the US trade department’s own figures here: https://www.census.gov/foreign-trade/balance/c5700.html So decoupling is not an eventuality on anyone’s mind right now but…

I’m going to go hypothetical and ask a question that would make both economists and psychologist squirm. The economists will say it can’t ever happen and the psychologists will say it could happen but will end badly. Let’s just ask it anyway:

What will happen if China gives the USA what they “seem to be asking for” and decouples?

Let’s look at the economics first. It won’t happen because it would cost billions, possibly trillions in lost income for China over the coming months and years. China would need to completely rethink its infrastructure investment, it would need to put poverty alleviation on hold, it would need to re-write and reorganise the coming 5-year plans and possibly all the way out to the year 2035. So, would they do it? Absolutely not. But remember, we’re thinking hypothetically.

From a psychology standpoint, it’s quite apparent that no one in the US state department or administration really understands the psyche of China. China is long-term focused and so are its people. They don’t think much about what’s the benefit right now, they think very much about what’s the benefit in 25 or even 50 years-time. Chinese parents aren’t doing things for their kids today, they are planning for their kid’s futures, even before the child is born. Psychologists know this dimension of culture as Long-Term Orientation (See the work of Geert Hofstede on https://geerthofstede.com/culture-geert-hofstede-gert-jan-hofstede/6d-model-of-national-culture/ for more information on this).

Recent surveys in China by predominantly US organisations (Harvard Ashe and Pew) have unerringly found one thing that surprised less academic observers. Chinese people are generally satisfied with their lives, and that the level of satisfaction has seen sustained growth. With one recent survey conducted by Harvard University showing Chinese satisfaction in their government as high as 95.5%. (https://news.harvard.edu/gazette/story/2020/07/long-term-survey-reveals-chinese-government-satisfaction/) Why is this surprising to US citizens? Because most of them read US news and watch US TV which keeps telling them the same story — Chinese people are wonderful, but their government is terrible — they need to be rescued from the yolk of tyranny! Compare this with the US surveys of government satisfaction and you’ll immediately see a different story. There are so many that they can’t all be listed here, but a good satisfaction rate in US government might get as high as 70% but usually hovers around the mid 50’s and has recently dipped as low as the 20s (https://www.usnews.com/news/politics/articles/2020-08-04/satisfaction-with-state-of-us-hits-nine-year-low-poll-finds).

This is only mentioned because if the Chinese government tells the people they need to do this, the people will support it much more readily than US citizens would support their government going into an austerity campaign for political reasons.

So, back to my hypothetical, what’s going to happen: Well, the situation is quite frightening. According to the Washington times: https://www.washingtontimes.com/news/2020/mar/17/china-threatens-restrict-critical-drug-exports-us/ if no trade were to happen between China and the USA, 95% of all ibuprofen, 91% of all hydrocortisone, 70% of all acetaminophen and as much as 80% of all antibiotics used in the US and made in China would stop arriving. Within a few days of decoupling, hospitals would be running out of medicine and pharmacies would be hoarding it for “special cases” (rich people who can afford it).

Sportwear is a little more complicated. A vast amount of sportswear is labelled Made in America, when the components are actually made overseas and assembled in America, probably more than 40% of all sports apparel is made in China, or is made using products sourced in China, but this could amount to 80% or higher when all the sports products are taken into account — a pair of Nike shoes, for example may well have laces from China, soles from Vietnam, uppers from Bangladesh and assembled in the USA. Exactly the same thing applies to cars in the USA, they may very well proudly call themselves US products, but up to 70% of the components in them were sourced from China (https://www.odometer.com/rides/3847/13-domestic-cars-made-almost-entirely-overseas/).

Mobile phones are also interesting, at least 70% of all the mobile phones in the US are made in China. None are made in the USA, not the Apple, nor the Motorola, which recently moved from Fort Worth Texas to offshore sites in Brazil and China. Even when they were made in the USA, they were assembled from components made mostly in Asia (China and Chinese Taiwan).

So, within a month of decoupling, the average American is going to go shopping and find no clothes, no shoes, no medicine, no mobile phones and not even able to buy a new car, or parts to repair the old car. Think of the imagery you have of Cuba today with many cars being 60 years old, this is the US automotive reality a few years after decoupling.

It’s ok, many people will say, we can get products elsewhere but remember decoupling means exactly that. How many shipping containers are there in the world? The answer is no-one knows for sure but it’s probably about 35 million, and China owns approximately 35% of them (https://en.wikipedia.org/wiki/List_of_largest_container_shipping_companies). When the US and China decouple, sourcing products from other places is going to be manageable, but then shipping them back to the USA is going to be impossible without access to China’s approximately 10 million containers. If you think that’s going to be ok, then start thinking about the ships — China owns 11% of all the container ships in the world (https://stats.unctad.org/handbook/MaritimeTransport/MerchantFleet.html).

In fact, there are few things in the world that the US doesn’t rely on China for. Food is one of them, with neighbours such as Canada and Mexico, the one thing the US can be sure of is they will have enough to eat. Oil is plentiful in the USA too, so no worries about that. Guns are another, the US currently holds an unknown number of guns in private possession with about 38% of its citizens armed and at least one gun per person in the country (https://worldpopulationreview.com/state-rankings/gun-ownership-by-state). Their guns are made in the USA, Europe and Israel, so there’s little doubt, if they needed more guns, they could get more guns.

However, in this hypothetical situation; who would want to live in a country where more than a third of the citizens have guns but none of them can get their cars repaired, communicate by mobile phone anymore because the infrastructure is down and are angry because they can’t upgrade to the latest Nike or Converse shoes. All they can get is food, oil and more guns. This is even more worrying when they have the world’s largest percentage of both legal and illegal drug dependent citizens who will be off their medication. Remember, much of that comes from China, and what doesn’t come from China, comes from India, on Chinese ships in Chinese containers.

In other words: USA — be careful of what you wish for.

NB: this is a hypothetical which takes no account whatsoever of the Chinese companies operating in the USA nor the US companies operating in China — they would all obviously need to decouple too but that’s the subject of an economic thesis, not an op-ed 😊