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Understanding U.S.-China Decoupling

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Understanding U.S.-China Decoupling UNDERSTANDING DECOUPLING: Macro Trends and Industry Impacts CONTRIBUTING AUTHORS The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations. Copyright © 2021 by the United States Chamber of Commerce. All rights reserved. No part of this publication may be reproduced or transmitted in any form—print, electronic, or otherwise—without the express written permission of the publisher. CONTENTS Message from Sta Executives...................................................................................................................................................................2 Executive Summary ........................................................................................................................................................................................3 Introduction .......................................................................................................................................................................................................5 How We Got Here............................................................................................................................................................................................8 Understanding the Scope .............................................................................................................................................................................11 The Aggregate Costs of U.S.-China Decoupling ..................................................................................................................................12 Aggregate Conclusions ................................................................................................................................................................................18 A. Aviation Industry ...................................................................................................................................................................................19 Industry Snapshot .................................................................................................................................................................................19 U.S.-China Engagement .....................................................................................................................................................................23 Analysis: What Are the Costs? .........................................................................................................................................................26 Interpretation: What Does It Mean for the U.S. Economy? ......................................................................................................33 B. Semiconductor Industry .....................................................................................................................................................................34 Industry Snapshot ................................................................................................................................................................................34 U.S.-China Engagement .....................................................................................................................................................................36 Analysis: What Are the Costs? ......................................................................................................................................................... 40 Interpretation: What Does It Mean for the U.S. Economy? ......................................................................................................46 C. Chemicals Industry ..............................................................................................................................................................................48 Industry Snapshot................................................................................................................................................................................48 U.S.-China Engagement .....................................................................................................................................................................53 Analysis: What Are the Costs? .........................................................................................................................................................55 Interpretation: What Does It Mean for the U.S. Economy? ......................................................................................................59 D. Medical Device Industry ................................................................................................................................................................... 60 Industry Snapshot ............................................................................................................................................................................... 60 U.S.-China Engagement ......................................................................................................................................................................61 Analysis: What Are the Costs? .........................................................................................................................................................64 Interpretation: What Does It Mean for the U.S. Economy? ......................................................................................................67 Conclusions .................................................................................................................................................................................................... 69 Appendix 1: Overview of U.S. Decoupling Policy Toolbox ................................................................................................................72 Appendix 2: Overview of U.S. Decoupling Literature .........................................................................................................................79 Methodology Appendices ...........................................................................................................................................................................81 A. Aviation ....................................................................................................................................................................................................81 B. Semiconductors ....................................................................................................................................................................................83 C. Chemicals ...............................................................................................................................................................................................84 D. Medical Devices .................................................................................................................................................................................. 86 UNDERSTANDING U.S.CHINA DECOUPLING Macro Trends and Industry Impacts MESSAGE FROM STAFF EXECUTIVES The U.S. and Chinese economies have become deeply intertwined in the last two decades. That interconnectedness has raised alarm bells in both Washington and Beijing in the wake of the COVID-19 pandemic and as competition accelerates between the two countries on strategic matters and advanced, innovative technology. Understanding both the fault lines and the benefits to the United States of our economic relationship with China as it stands now is critical to preparing for the relationship with China we want—and can live with—in the future. The U.S. Chamber of Commerce’s China Center has for the better part of two decades documented both the growth of the U.S.-China economic relationship and the challenges posed by China’s trade and investment regime for U.S. competitiveness and market access. We have long advocated for a balanced and rational approach to commercial relations with China, one that recognizes the importance of a market of 1.4 billion people, while managing the realities of China’s political and economic models. This approach included both patience and enthusiasm for the progress toward opening in the years after World Trade Organization (WTO) accession, and, more recently, calling Beijing to account for policies that reversed course from the promises embodied by its entry, and which have put the state and Chinese Communist Party (CCP), rather than market forces, back in the driver’s seat. Indeed, as China’s international ambitions of becoming a global technology powerhouse have continued to rise—supported by the increasingly coercive use of economic statecraft globally—its commitment to open-economy, market-based norms has flagged in critical areas. The two countries have attempted to disentangle aspects of our economies in recent years. As the U.S. Chamber of Commerce documented first in our 2010 report China’s Drive for Indigenous Innovation: A Web of Industrial Policies, which focused on the policies and implementation tools Beijing deployed to reduce reliance on foreign technology, and subsequently in our September 2016 report Preventing Deglobalization: An Economic and Security Argument for Free Trade and Investment in ICT, the initial moves emanated from China. China’s eorts accelerated
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