Ex-officials warn against decoupling

Amid the challenges and political sensitivity surrounding the de-risking of economic and trade ties with China, two former economic officers of the United States said decoupling the two economies would be a mistake.

At a recent webinar titled "Balancing Economic Prosperity and National Security", Charlene Barshefsky, a former US trade representative, and Amy Celico, a former US economic officer who worked in China, discussed the challenges of negotiating a bilateral investment treaty since 2010.

Both women, who are now directors for the National Committee on US-China Relations, said the bilateral relationship is competitive, with varying degrees of tension. But it has been punctuated with intermittent cooperation and a resumption of selective dialogue.

Barshefsky, speaking about former US president Donald Trump's tariffs on China that started in 2018, said the import duties were not strategic and affected lower-income households in particular.

"Tariffs are taxes, and they are not paid by the exporter. They're paid by the importer," she said.

However, on May 14, US President Joe Biden increased tariffs on Chinese-made electric vehicles, lithium-ion EV batteries, battery parts and solar cells.

EV tariffs have quadrupled and will reach 100 percent. Tariffs on lithium-ion EV batteries and battery parts have more than tripled, increasing to 25 percent, while those on solar cells have doubled, reaching 50 percent.

Asked if the latest tariffs are necessary, Barshefsky said she is "not particularly fond of tariffs".

"I'm not a trade-barrier kind of person. I'm a fair trade advocate who likes to see a level playing field," she said.

Barshefsky said it was a "very hard" policy choice for the Biden administration, given the current economic challenges in the US.

Celico questioned the tariffs' impact on economic prosperity, whether they are justified for national security purposes, and whether the US should compete with a country that operates under a different set of rules.

"And thinking about balancing economic prosperity with national security, we are paying a cost over this set of policies," Celico said.

'Paying a cost'

There is no question that "we're paying a cost", Barshefsky said. As "most governments aren't philosophically oriented … they're the here and now oriented."

Many economists, who continue to favor less restrictive trade with China, have criticized both US presidential candidates' plans — not just because they risk raising prices for US shoppers.

Barshefsky, known globally as the architect and negotiator of China's World Trade Organization agreement, which opened China's economy as a worldwide market, recognized that the idea behind WTO accession is not to create uniformity among countries, as countries are inherently different.

"It's not about establishing the same economic system everywhere. Instead, the goal is to foster greater compatibility between different economic models," she said. "So that in the international trade space, we're talking the same one… roughly abiding by the same rules, and no system is perfect."

The US and China are not operating on the same model since China shifted from an import substitution economic model to an innovation program in the 2010s, diverging from a Western-based system, Barshefsky said.

As a former US economic officer working in Shanghai for years, Celico believes that previous US administrations understood that fostering closer economic ties by expanding cross-border investment flows would be beneficial for the relationship between the two countries. However, "our recent two governments failed in that endeavor", she said.

"Of course, the Chinese government would accuse the US government of undermining Chinese interests at every turn and really trying to prevent China from continuing to be able to grow, unfairly treating Chinese investors in the US (and) restricting that access," Celico said.

Most people in the US believe decoupling from China is not a good idea, she said. It would result in many challenges for both countries and effectively reduce the vulnerabilities of interdependence.

Celico said the way that China and the US treat each other in global competition is consequential for the business community, but she hopes the competition can be more "constructive".