DERISK:NICE WORD FOR DECOUPLE

Limit Dependence on China to Absolute Minimum

European Commission President Ursula van der Leyen is a clever wordsmith as well as politician. “Decouple” from China sounds sooo absolute, sooo costly, sooo, well, final. But “Derisk”, well, of course, it depends on how one defines risk of course.

So it sounds not so final, not too far reaching, not drastic, just discreet and cautious. But the truth is that '“derisk” is essentially the same as “decouple”, it’s just a more elegant way of saying the same thing. Or perhaps it is a way of fooling the audience and even of fooling oneself.

Let’s get real. China has been broadcasting loudly and steadily for quite some time now that it essentially aims to become as self-sufficient as possible across the board of industries, and especially of hi tech industries. Xi Jinping talks constantly of recovering China’s lost glory. Let’s remember that at the height of that glory, a British delegation visited the Chinese Emperor to speak of opening trade and was told politely to go home because Britain had nothing that China was interested in buying. China, said the emperor, could make for itself, all that it needed. No need for trade. Xi is clearly thinking like the old emperor. He states openly and constantly that China will make itself as self-sufficient as possible. Of course, it cannot avoid buying oil, agricultural produce that it cannot grow itself, but in terms of manufacturing and technology, it states openly that its goal is self-sufficiency and it has huge projects and funding aimed at gaining exactly that.

When China talks trade it means exports. One reads often that many, many countries have China as their largest trading partner. Indeed this is often said of the ASEAN countries. But at glance at the numbers shows that all of them have trade deficits with China. They are buying a lot from China, but not selling that much to it. The countries that sell to China are the suppliers of coal and iron ore like Australia or the suppliers of oil like Saudi Arabia. They are selling necessities that China simply does not have. The EU is running a large trade deficit with China and that includes even Germany which long had a surplus but is now deep in deficit along with the rest of its EU partners.

It is now widely agreed that semiconductors are essential to national security and that the free world must keep its present technological lead over China for as long as it can as a matter of national security.

Now ask yourself, this question: are semiconductors more important than batteries for electric vehicles, or key ingredients for pharmaceuticals, or aviation and aerospace equipment, or next generation information technology, or robotics, or artificial intelligence, or advanced electrical equipment, or aero-space (including establishing bases on the moon) or bio- medicine? These are all areas China has specifically targeted not only for domestic development but for global technological leadership.

Are Janet Yellen and Ms. Van der Leyen saying we won’t sell China advanced semiconductor chips and equipment, but hey aero-space, and Artificial Intelligence are no big deal? Or do they not care if China dominates pharmaceuticals, robotics, batteries for electric vehicles, and key pharmaceuticals?

Consider what China has demonstrated in its behavior to date. Norway awarded the Nobel Peace prize to Liu Xiaobo in 2010. In response, China banned the import of Norwegian salmon. When the U.S. and South Korea installed an advanced radar system on land in South Korea owned by the Lotte Corporation in 2018-19, China halted all shopping in Lotte stores in China. Lotte eventually withdrew from the Chinese market. When China became upset over various measures and statements in Australia warning about Chinese penetration of Australian politics, China suddenly allowed imported lobsters from Australia to rot on the docks of Shanghai and dramatically reduced its imports of Australian iron ore and coal. When Lithuania allowed the establishment of a Taiwan representative office in Lithuania, Beijing suddenly halted all trade with Lithuania, but also pressured EU companies obtaining parts for their products from Lithuania to stop doing so. When a U.S. professional basketball coach tweeted in favor of demonstrating Hong Kong students, China suddenly halted all broadcasting of U.S. professional basketball in China.

Or consider the comment of a prominent southeast Asian Prime Minister to me in a recent conversation. Said he: “We must always play carefully with China. Students and tourists from China are a major part of our economy. We know that China can cut them off entirely with a word if they become upset with us. So we try not to upset Beijing too much.”

Let’s be real and not kid ourselves. There is no such thing as “de-risking” with China. Serious de-risking means very substantial de-coupling. Maybe we shouldn’t care if Starbucks sells coffee in China, but becoming dependent on China for a wide range of advanced products and technologies is not advisable for the United States pr for any country committed to free speech, rule of law, and democracy.