Experts Say Decoupling Policy Likely to Intensify No Matter November Outcome

Decoupling between the U.S. and China in the most technologically advanced products is real, economists said at an Oct. 21 Peterson Institute for International Economics event, but trade overall between the two countries continues to grow, if more slowly than trade with other partners.

But PIIE Fellow Arvind Subramanian said economists may be overly concerned with the results of the 2018 trade war and the reaction to the Russian invasion, "and not concerned enough about what might happen."

Subramanian said the global economics is "in for much more dire consequences," and he believes that could be true with either Trump or Harris winning the presidency.

"We have to take Trump seriously" about his threats to impose 60% tariffs on Chinese goods, and even higher tariffs on goods he doesn't want American manufacturing to compete with.

But, he said, "Even in a non-Trump adminsitration, the anti-China frenzy and fever is so great in the United States that you could see something pretty extreme happening."

He said he thinks the rules of origin will change, so that they don't measure how much transformation happened in a country, to rules that target Chinese firms, Chinese technology, and what he called "suffocating rules of origin against Chinese inputs."

Ana Aguilar regional adviser officer for the Americas, at the Bank for International Settlements, said Mexicans are watching and wondering how the U.S. will change the rule of origin as part of the 2026 free-trade-agreement review. She argued that Chinese foreign direct investment, while growing rapidly in Mexico, is not such a big deal -- it's only 2% of FDI in the country.

Leila Afas, director of international policy for Toyota North America, told the panel during the Q&A that the changes in trade patterns due to the tariff war may have looked muted because there was optimism that after Trump left office, the Section 301 tariffs might be lifted.

Now, she said, with the Uyghur Forced Labor Prevention Act detentions and the pending rules on connected vehicles made by Chinese firms, decoupling may become more obvious in the statistics.

"As much as we don’t like tariffs, they can at least be paid," she said. "You can’t get around a prohibition."

Subramanian thanked Afas for bringing up the connected vehicles rule. "This is only intensifying," he said. "The anti-China frenzy, the anti-trade mega frenzy are going to combine."