As the Chinese Communist Party (CCP) doubles down on its various aggressive strategies against the United States and our global partners, including the European Union and Japan, decoupling into two world economic blocs is accelerating.
This decoupling is alternatively portrayed as a “de-risking” or “fraying” of the economic, diplomatic, and military links between U.S.-allied and China-allied centers of power—the latter including countries that rely on China for their exports, such as Russia, Iran, and North Korea. As China exchanges links to the world’s top G7 economies—the United States, the EU, Japan, and Canada—for less lucrative or even costly links to relatively impoverished countries that ask for development aid and diplomatic cover for their misdeeds, the regime in Beijing is closing doors previously open to China and getting the short end of its own stick.
One of the most important links for China to the G7 has been the acquisition of cutting-edge Western technology on the cheap by sending students and professionals for education abroad to places such as the United States, the UK, Canada, and Australia. Now, that access to Western academia is being cut. The United States started in 2019 by investigating and then severing the CCP’s “Thousand Talents Plan,” which funded U.S. academic programs in exchange for science and technology expertise. Now, the public realizes that U.S. defense spending also funds research at U.S. universities that benefit China’s People’s Liberation Army. If the universities do not cut their ties to adversary militaries, that funding will soon end. You can, therefore, count on them to do so.
The Biden administration, which raised tariffs on Chinese electric vehicles (EVs) to 100 percent in May, on Sept. 23 proposed a general ban on Chinese software and hardware used in vehicles that can connect to the internet. That would effectively ban Chinese vehicles altogether. Taiwan and the United States are meanwhile ridding China of supply chains that provide our military and commercial drones. The concern is that Chinese technology in drones and EVs could be hacked, hijacked, and then weaponized by the CCP against us in case of war. They could be used to track, target, or kill U.S. citizens.
This would fit the Chinese regime’s modus operandi of proliferating malware to attack U.S. critical infrastructure, such as water supplies and electricity grids that are critical to hospitals and most everything else in a modern society. On Sept. 18, the FBI revealed that it had defeated a Chinese malware campaign infecting more than 260,000 devices globally. The natural reaction of the United States and our partners is to accelerate decoupling, especially of devices that can be used against us.
China’s greatest hope is that the EU will take up the trade slack from U.S. decoupling. The EU has imported more from China over the past few years, partly because of Brexit and the Russia–Ukraine war. Recent indicators are negative for a continued EU turn to China and derive from the same causes as U.S. decoupling, such as Beijing’s threat of war against Taiwan and aggressive Chinese subsidies and product dumping. The EU imposed an extra 36 percent tariff on Chinese EVs in July because of concerns about dumping. On Sept. 19, a Volkswagen audit of its operations in China was alleged to be flawed, increasing pressure on the company to stop producing in China.
Beijing’s self-destructive policies are not only against the United States, the EU, Japan, and our companies but also against its own people directly. This causes a rapid increase in immigration abroad and leads to capital flight for both local and international businesses. The CCP is thereby starting to decouple with China itself. The latest news about the Uyghurs is a case in point. The CCP’s attempts to force Uyghurs and other Turkic Muslims in the Xinjiang region to abandon their religion in favor of what might be called a regime-sponsored “CCP religion” has gone badly. It elicited global human rights condemnation of genocide and forced labor in the Xinjiang region. China ignored these criticisms, which eventually became sanctions against goods produced in Xinjiang.
Beijing on Sept. 24 announced potential counter-sanctions against PVH, parent company of Calvin Klein and Tommy Hilfiger. The CCP claims that these companies discriminate against products from Xinjiang as a result of the sanctions. Given the West’s larger economies and the ability of companies such as these to get cheaper labor elsewhere, that will cause even Chinese companies to move their factories out of China.
Economists advise China to rev up its own economy and absorb goods that used to be exported. But, as indicated above, the Chinese economy is suffering from weak demand because of a lack of confidence from the Chinese consumer, who does not want to invest in an economy that is self-destructing because of the bad economic and military policies of the regime. It is more rational for the Chinese family to save money and try to get out of the country, at least through sending children to greener pastures elsewhere.
Despite announcing the largest fiscal stimulus—in the form of lower interest rates—since the COVID-19 pandemic on Sept. 24, the regime’s efforts will result in little additional domestic investment. Meanwhile, the stimulus, which includes lower reserve requirement ratios for Chinese banks, increases the risk to the country’s financial sector.
Any criticism within China of these self-destructive policies is being suppressed. In the spring, a prominent Chinese economist who criticized CCP economic policies in a private group chat was detained. That makes the CCP less accountable and informed. Without internal critics, the CCP will likely compound its many past mistakes well into the future.
