Next Up in Global Decoupling: The US Strategic Competition Act 2021

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Op/Ed by Chris Devonshire-Ellis

  • Strong anti-China sentiments within an aggressive Bill presented to Congress
  • Danger of US-China strategy being perceived as ‘un-negotiable’ 
  • A further step forward to Global Decoupling – who will blink first? 

Following on from this week’s earlier essay “Global Decoupling: The Map” in which I described how a future ‘new cold war’ world could look, comes news of the new US Strategic Competition Act 2021, which only ramps up the possibility of eventual decoupling. The 300 page bill seeks to counter China’s global influence through a range of political and business protective measures, and is specifically at aimed in the preface “To address issues involving the People’s Republic of China.”

Some of the business measures include publication of a list identifying Chinese owned firms benefiting from involuntary or coerced tech transfers of IP from a company established in the US.  The bill also proposes a list of subsidies to companies favored by China’s government or protected from overseas competition, and state enterprises benefiting from financial support by China’s government, and which give advantage to them over foreign competitors.

This latter point has been a bone of contention between China and the United States, with Washington long arguing that China subsidizes its SOEs in manners inconsistent with WTO agreements. China in fact changed its laws to prevent audited accounts of Chinese enterprises being admitted to subsidiaries external from China in moves to specifically introduce a lack of transparency to other nations auditors, and criminalized any attempt to do so, suggesting there were indeed WTO breaches to hide.

However, in still more assertive measures, the United States has been using trade sanctions to punish competition – such as Russia’s Nord Stream Gas pipeline to Europe, and the banning of China’s Huawei 5G equipment.

These to some degree, have been localized, if heavily damaging methods of trying to obtain the upper hand while publicly being seen to be playing by the rules, or at very least instructing media that this is the case while offering ulterior motives for pursuing such actions: the annexation of Crimea and the still unproven accusations of Russian influence in US electoral fraud aimed at Moscow, and alleged spyware in Huawei kit aimed at Beijing.

Given that the United States federal budget spend on IT in 2021 is an estimated US$92 billion, and Russia’s an estimated US$61 billion, one would wonder why Russia tech appears superior and able to defeat US defenses so often. China though is a different story – currently the global behemoth in IT budgets – an estimated US$378 billion was allocated in 2020, according to figures released by the NDRC.

If so, then the United States is in danger of losing out in the global battle for tech supremacy. As Vladimir Putin pointed out at the SPIEF conference in 2019, whoever gets to AI supremacy first, rules the world.

The Strategic Competition Act therefore can be seen as an attempt to plug that gap until the US can play catch-up. Within it are other measures that connect business with political issues.

However, the entire tone of the legislation is extremely combative and not something which would be conducive of improving bilateral relations. In fact, it may be described as the beginning of the end of cordial relations between China and the US – and usher in that very same Global Decoupling that Presidents Putin and Xi warn about.

Examples of the bills combative language are phrases such as  “It is the policy of the United States, in pursuing strategic competition with the PRC, …to expose the PRC’s use of corruption, repression, coercion, and other malign behavior to attain unfair economic advantage and deference of other nations to its political and strategic objectives.”

The text also asserts that “The PRC is promoting its governance model and attempting to weaken other models of governance by undermining democratic institutions; subverting financial institutions; coercing businesses to accommodate the policies of the PRC; and using disinformation to disguise the nature of its actions.”

To be accused of such behavior in a bill – without any right to reply – will not sit well with Beijing. It will also signal to China that the US diplomatic process is not working. The bill assumes that the Chinese Communist Party represents a repressive regime that is not open to negotiation.

The Bill has been read twice to Congress and has been passed to the United States Committee on Foreign Relations, who have backed its passage. If it progresses further and comes into law, Decoupling takes an assertive step further towards becoming a reality.

The questions to ask therefore are whether the United States, or China will blink first. That can happen in two ways, either by a toning down of the rhetoric and the putting forward of an alternative path in which the United States can cooperate or negotiate with China on matters of mutual interest or to use a negotiable strategy in which concessions are made by one party to obtain key favors from the other.

If not, given that China and Russia’s IT spend combined are nearly five times that of the US – hi-tech savviness and development will shift to Asia, and not the West, and the very scenario that Presidents Putin and Xi warn about will occur. The US Strategic Competition Act has the potential to be the trigger to push that reality forward, meaning an alternative US strategy urgently needs to be found.

US President Biden has also proposed an additional US$1.8 trillion plan “to support families”, while also arguing the spending plans are necessary “to keep up with China”. It appears the US are now throwing everything into play to ensure their economy remains ahead of China’s.

There are problems with this strategy – the current economic and trade scenario seems to be headed for an economic growth showdown which could break the global economy if growth takes off, inflation kicks in and monetary policy becomes suddenly restrictive – possibly severely restrictive – leading, in turn to a potential financial crisis given vast current private and public debt levels. That surely, would be the inevitable result and what would that mean for the global economy going forward? Global decoupling could happen along more than one fault line – with economies on the dividing cracks as well.

Meanwhile, other pushes towards decoupling are also gathering steam. Yesterday, a group of European Commission Parliamentarians tabled a motion to cut Russia off from the global SWIFT payments network if demands over Ukraine were not met. The problems between the EU and Russia represent another fault-line that would further push Russia towards China and the development of the ‘Greater Eurasian Partnership.’ The warning signs are ringing loud and clear – an EU pushing Russia away coupled at the same time with the US pushing China away. Decoupling will occur if something doesn’t give, and fast.

We are grateful to Bob Savic for his assistance in creating this editorial. 

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About Us

Silk Road Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Asia, and assists foreign investors into the region. For strategic advisory and business intelligence issues please contact the firm at silkroad@dezshira.com or visit www.dezshira.com

 

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