The theory of decoupling is a more civilized way of imposing economic sanction which often leads to war
Decoupling takes place when different classes of asset that typically rise and fall together start to move in the opposite directions, such as one increasing and the other decreasing.
One example might be seen in the exchange of oil and natural gas prices, which typically rise and fall according to demand.
From a layman’s point of view, this is to indirectly justify economic sanction on specific products upon which the country is threatened to surpass its imports and exports like micro-chips, feeling insecure that should China surpass the US in the manufacture, production and export of these products, that eventually could contribute to the weakening of its hegemony in this particular field of economic competition.
Many countries in the West today resort to the weapon of economically decoupling states in the belief certain products were originally produced and/or invented by them, and the export or sale of these products would violate certain rights as if to indirectly emphasize these products have exclusive patents and cannot be reproduced, manufactured or exported without violating their so-called “patent rights.”
The theory of decoupling is a more civilized way of imposing economic sanction which often leads to war.
In practice, countries that impose sanction by way of decoupling states sees them as threat to their own economic security.
They often overlook the possibility the sanctioned state sometimes is more economically refined or has more potential in advancing against those that impose the said sanction.
Take the case of China.
Admittedly, China imports more micro-chips from either Taiwan, Luxemburg or from the US.
Whatever is the situation, China remains the biggest producer and supplier of these micro-chips.
This alone stands as a dilemma to the US and other countries many of whom stand as equally to be affected by the US’ economically decoupling China.
For instance, Taiwan and Luxemburg will not be directly affected by the US decoupling of China, but they remain totally dependent on China for their imports of these “rare earth” minerals, which today can only be produced in vast quantifies by that country.
The decoupling now indirectly affects these countries as exporters of semi-finished micro-chips.
It is the supply chain that is badly affected although the main target is China.
The US is likewise affected because, as supplier, it will not meet the demand, not to say, its cost.
The exporting countries are hesitant because they know they also will be affected by this unilateralist policy of the US.
Economic sanction, like decoupling, results in an incoherent application of the economic policies.
The practice will never work to achieve a coherent policy for that, in fact, is an expression of one’s national interest more than anything else.
A good example is the economic sanction on Russia.
After it invaded Ukraine, the economic consequence was incalculable and affected countries far beyond what EU could imagine.
The unilateral confiscation of Russia’s $300 billion dollars reserve and its expulsion from SWIFT or world-wide financial telecommunication system was intended to frighten Russia’s credit and loan capacity.
Such resulted instead in the accelerated application for membership to BRICS organization and the formalization of the Asian Infrastructure Investment Bank (AIIB) which now poses to compete with Western financial institutions such as the International Monetary Bank (IMF) and the World Bank (WF).
This lackluster decision by the US and EU saw the sudden slide of the US dollar as the world’s international currency reserve.
The attempted swindling of Russia’s foreign currency reserve pushed the entire western financial institutions to the brink of bankruptcy with many European and American banks suddenly felt wobbly for lack of financial trust.
The blatant violation of the financial institutions opened the floodgates to the de-dollarization of the US as the international currency reserve.
Many countries, all of a sudden, abandoned the dollar as their principal system of exchange.
Many opted to use the Chinese yuan or renminbi as their medium of exchange which goes to show the Chinese currency now commands higher value and respect than the US dollar.
The most glaring defiance of this seemingly unilateralist policy of the US is its decision through the European Union to ban the importation of Russian oil and natural gas.
This has resulted in the prosaic pricing of the commodity which most consumers cashing in by importing Russian gas and selling them to friendly countries.
Saudi Arabia has finally abandoned the petrodollar system of exchange, meaning that one can only buy oil if they convert their currency to US dollar.
Now, Saudi Arabia has openly shifted to the Chinese yuan as their medium of exchange in exchange for imports of Russian gas.
The worse thing is that India, a supposedly neutral country and an original member of BRICS, has taken advantage of the big discount given by Russia only to resell them to the US and other EU member states at a much-bloated price.
India knows there exists a ban on Russian imports, and member-countries like the EU states comply for fear of US retaliation.
The US has now become a pariah, for nobody really respects such unilateralist policy.
In fact, the EU ban on Russian’s natural gas has greatly improved Russia’s economy and allowed it to diversify trade with China, prompting it to open a new gas pipeline from Russia to north of China.
This now explains why the economic policy of decoupling will never work if that country sought to be decoupled is economically bigger than the decoupling state.
This is logically simple.
How can the US, for instance, impose trade sanction against China, when world trade reveals now that China stands with the highest production and manufacturing companies in the world?
This means that China now produces the highest number of manufactured goods or, in simplest term, the greatest producer of wealth.
This explains why the US will not succeed in decoupling China.
The US can never absorb China’s total exports as a way to decouple that country.
Since 1973 when they abandoned the gold in a devise to measure its economic growth, from then on, it relied on its GDP to increase the US dollar in circulation.
US economists thought that increasing the dollar could increase their business profit, unaware that it could result in the diminution of US imports.
From the consumer’s point of view, such could result in inflation or from the businessman’s angle, it results in the devaluation of the currency.
This inevitably resulted in higher production cost for American manufactured goods with China cashing in to increase its exports to the US.
Instead of decreasing the sale of US treasury bonds to decrease foreign debt from China and Japan, the unabetted sale of these bonds was an easy way to augment the US dollar, knowing it to be the reserve international currency of the world.
As US trade deficit against China widens to such astronomical level, the idea of decoupling China is likely to end up as more of a pipe dream.
Former US President Trump’s idea of imposing tariff has backfired as it turned out to be a tax on US imports from China.
The US has to economically surpass China both in production and manufacturing to effectively decouple that country where it once stood as the world’s greatest manufacturing state ranked after WW II.
(rpkapunan@gmail.com)