Opinion | Will the trade war lead to US-China decoupling? In an increasingly interconnected world, that would be next to impossible

Global supply and value chains are more enmeshed than ever, even as disruptive technologies erase boundaries in space and time, making decoupling a practical impossibility, never mind a viable threat

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Visitors walk past a screen at the 6th World Internet Conference in Wuzhen, China, on October 21. More cooperation, not decoupling, is needed as the world embarks on its fourth industrial revolution. Photo: EPA-EFE

Published: 1:00am, 9 Dec 2019Updated: 1:14am, 9 Dec 2019

In a world of rising unilateralism and anti-globalism sentiment, talk of decoupling is occurring more frequently across economic and political spheres, especially in the context of the trade tensions between China and the United States. There is talk of decoupling in the simple trading of goods, across the more complex supply and value chains, and even in the frontiers of innovation and technology.

However, given the complexity of interconnections, even a trade decoupling may not necessarily deliver the expected results. This has been clearly demonstrated since the tariff increases fielded by both the US and China in their trade war.

The shape of a supply chain is determined by the flows of goods and services, but its nature hinges on competitiveness.

In modern trade, comparative advantage allows a company to sell more cheaply than its competitors and achieve better margins. In theory, decoupling from a supply chain would mean replacing, say, one country at a certain point in the chain. But, in essence, it represents a total transfer of manufacturing capabilities.

Cost and efficacy are not the only bottlenecks; a lack of skilled labour or infrastructure can also be big deterrents. In reality, countries in the key nodes of supply chains are irreplaceable, at least in the short to medium term.

This is even more so for a value chain, essentially a matrix that may contain dimensions of multiple supply chains. Any international value chain system, once up and running, involves tightly woven interactions and synchronisation across a wide area.

China’s manufacturing supply and value chains are examples of such complex matrices. Minor adjustments and upgrades may be required from time to time, but abandoning key components would be as challenging as redesigning and reconstructing the whole architecture.