Treasury Secretary Janet Yellen returned from her trip to China earlier this month, in an attempt to soften the edge of U.S.-China competition. Reopening a constructive dialogue with Beijing is a good thing, and Yellen articulated a hope for competition that is not “winner take all” but rather competition within a fair set of rules benefitting both nations. Hopefully, the Biden administration wishes to thaw relations with China while not turning a blind eye to China’s aggressive behavior. Indeed, the United States and its democratic allies must ensure that any engagement with China is premised on reinvigorated support for open, transparent trade and competition and respect for democratic institutions. Ignoring China’s coercive actions within its own borders and around the world will accomplish little.
Yellen has pointed out that the “decoupling” of our giant, interdependent economies is neither possible nor desirable. On the other hand, Yellen clarified that the United States is planning strategic “derisking” of critical supply chains with countries invested in maintaining and strengthening a rules-based economic and political order. Investing in what Yellen calls “friend-shoring” can help communicate to China that the United States and its allies will end dependencies that Beijing can weaponize for political and economic blackmail.
Yellen is correct that talking about decoupling and “picking sides” between Washington and Beijing is both naïve and unhelpful. This is not a new Cold War. Unlike the Soviet Union, China’s economy is highly integrated with that of the United States. It ranks as its third largest trading partner behind Canada and Mexico. As China and the United States continue massive commercial engagement, both seek to take advantage of emerging markets—pushing infrastructure, development, trade, and military partnerships throughout the Global South.
China promises easy money, quick and plentiful infrastructure, and big-ticket projects that play well with local leaders looking to impress constituents. The cost of that infrastructure, however, is not just high-interest rate payments but also Chinese-exported corruption, surveillance technology, contractual and procurement opacity, shoddy workmanship, and political influence. Meanwhile, the United States and its private sector can offer a deal more likely to deliver enhanced prosperity, good jobs, and respect for environmental justice, worker and human rights than China’s coercive authoritarianism.
The United States and China are economic and geopolitical competitors with starkly different visions of the role of governments, capital, industry, and development. Despite Chinese president Xi Jinping’s claim that “competition among major powers does not conform to the trend of the times,” China has moved to outcompete the United States on technology, global leadership, clean energy, and military might, among countless other issues. Beijing further complains that Washington is trying to decouple from China, while furtively decoupling its economy for years.
The healthy competition that Washington advocates does not suggest that the United States seeks to fully untangle itself from China or disconnect China’s economy from the world. Rather, a U.S.-driven competition enhances the interdependence, economic and political hand of countries that respect an open, rules-based international order.
In this context, the United States and all Western democracies should avoid false dichotomies premised on forcing countries to choose between rival hegemons. Instead, Europe and North America should both offer better economic development plans. This means unleashing the power of Western private capital by de-risking investment in infrastructure, technology, and industry in emerging economies. The United States is also in a position to build potent free trading blocs and promote trade-based alliances that open American markets to more than cheap Chinese goods.
An especially powerful tactic in this competition is ally-shoring—developing and expanding supply chains with countries that respect and genuinely participate in a rules-based international order. Decoupling our most sensitive and critical supply chains from China is an opportunity to connect with trading partners that share a goal of mutual economic security based on democratic norms. Rather than capitulating to the Chinese pressure to view democratic rules and standards characterized as “interference,” we can foster a values-based system that speaks to the hearts and minds of citizens everywhere. It’s hard to find people anywhere who support government-sponsored corruption and censorship of opposing viewpoints.
To operationalize ally-shoring, the United States can’t just talk in general terms, as Secretary Yellen and other leading officials in the Biden Administration have done. Rather, the United States must pull together with our closest friends and partners to explicitly define a joint offer to other countries that encourages mutually beneficial investment, transparency, economic development, trade, and business expansion assistance.
This offer must focus on the Global South—where there is great skepticism about friend-shoring and understandable reluctance to get caught in the middle of the United States and China superpower competition. The Western offer need not be premised on rejecting China but instead on the rules of the liberal, open capitalist system through which China and the United States have all thrived—rules that China now seeks to dismantle.
Washington must communicate that America is not trying to check China’s economic rise. Still, if China continues to use its economic and political influence to foist its authoritarian system on the world, the United States will blunt its tools of economic and political coercion. Doing so will slow the spigot of open-market, export growth that China has benefitted from for years.
By implementing a determined and detailed policy of friend-shoring, the United States can keep critical supply chains and industries in friendly hands while continuing to drive forward an integrated and mutually reinforcing international economic system.
John Austin Directs the Michigan Economic Center and is a Nonresident Senior Fellow with the Brookings Institution and the Chicago Council on Global Affairs.
Elaine Dezenski is Senior Director and Head of the Center on Economic and Financial Power at the Foundation for Defense of Democracies.