It is hard to overcome economic incentives
and Joe Biden do not agree on much, but they are of a similar mind when it comes to America’s trade relations with China. They believe that the world’s largest economy is simply too reliant on its second-largest. Thus American officials travel the world touting the benefits of “friendshoring”—or shifting production out of China and into less risky markets. Business leaders make positive noises, and are sincerely worried by China’s weak economic growth, not to mention its volatile politics.
Other data provide additional reason for scepticism about decoupling. “Input-output” tables, as published by the Asian Development Bank, show the share of a country’s economic activity that can be traced back to other ones. Examining 35 industries, we calculate that in 2017 the Chinese private sector contributed on average 0.41% of American firms’ inputs. That may not sound like much, but it beat the 0.38% that came from Germany and the 0.24% from Japan.
Across the world, many such arrangements are emerging. Take the case of India, where the government is trying to build up its manufacturing base. Following the introduction of subsidies, mobile-phone exports have soared, suggesting that India is eating China’s lunch. However, in a recent paper Rahul Chauhan, Rohit Lamba and Raghuram Rajan, three economists, point out that the import of mobile-phone parts, such as batteries, displays and semiconductors, has also jumped.
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