Staying married to China – on tackling threats from China

General Studies Paper 2

Context: The US and the EU countries have changed their mind towards their strategy of decoupling from China. This could be seen from their speeches.

What are some of the speeches from the US for China?

• The US secretary recently said that the US will speak out when its interest is at stake. However, this does not mean that it wants to decouple its economy from China’s.
• This is because a full separation of our economies would be disastrous for both countries. It would also be destabilising for the rest of the world.
• A similar kind of message was given by the US national security adviser. He said that the US thinks of de-risking and diversifying, not decoupling from China.

What is the new de-risk strategy of the US and how does it differ from the previous decoupling strategy?

• The new ‘de-risk’ strategy is a departure from the ‘decouple’ plan. It also intends to change the perspective of the US from the fact of geo-economic containment of China is not easy.
• The decouple plan stated that the geo-economic containment of China would preserve the world’s equilibrium without involving any form of conflict.
• It was suggested that the US should restrict trade with China; deny China access to key raw materials; and stop technology transfers that China would need. These all would slow China’s economic growth.
• This advice was accepted by both Biden and Trump which aimed at starting New Cold War. However, it is different from the Old Cold War with the Soviet Union.

What are the differences between New Cold War and the Old Cold War?

• The Old Cold War sought the Soviet Union to be geopolitically contained while the New Cold War aims at geo-economic containment of China.
• However, it is not easy to sustain the New Cold War because China is the world’s biggest manufacturing and trading nation with almost every country around the world having economic relations with it.
• Hence, the US and the EU have discovered that it is not easy to achieve the geo-economic containment of China in the long run because they remain dependent on China in many ways and reducing these dependencies will take time.
• They have also realised that countries and industries around the world are deeply integrated into China’s economy, and vice versa. Hence, due to the complex global supply and value chains, decoupling is not easy.

What steps have been taken by India to reduce its dependence on China and what are the associated concerns?

• In 2019, the Indian government opted out of the Regional Comprehensive Economic Partnership agreement to reduce India’s trade dependence on China.
• However, four years later India’s trade deficit with China reached an all-time high of over $85 billion.
• Indian businesses urged GoI that while decoupling is tough, even de-risking would require investments and policy changes that are not easily forthcoming.
• Hence, it is not easy to substitute the dependence on China for India as well as the rest of the world.