The US wants an economic divorce with China

There has been little less talk about the US-China trade conflict lately. However, this does not mean that it loses its intensity. It is quite the opposite. It looks like we will soon be witnessing a decisive game.

The United States, as the world's largest economy, usually follows a rather specific logic in its policy. They are not afraid of the growing importance and strength of other countries. On the contrary, they believe that the best business is done with strong and rich partners. This is one of the reasons why, after World War II, the US invested huge resources in the Marshall Plan and other forms of aid for Western Europe and Japan. Therefore, they often have a disproportionate share in the financing of institutions such as the United Nations, International Monetary Fund or the World Bank. In America, it has always been believed that global economic development should be supported.

America is developing an equal partner

However, more and more people are asking themselves whether this logic can be applied to modern China. Is powerful and wealthy China really in the interest of the United States? There is no doubt that Washington looks differently at Germany, Japan, Great Britain or Russia and differently at China. A country that the United States may fear has appeared on the world map for the first time.

In the US, it is becoming more and more common to believe that the two economies are too closely related. The Chinese monopoly on the production of essential ingredients for popular medicines is considered particularly dangerous. It is similar with the production of parts for electronic products. Hyper-globalization has led the United States to lose the ability to produce many essential items on its own. Another major concern is the Chinese approach to democracy and human rights.

Who gains and who loses

According to the most widely accepted view, intense trade relations between the two countries led to American jobs being exported to China. It turns out, however, that this view has nothing to do with reality. For a long time, unemployment has been falling in the United States and rising in China. So it is not true that only China benefits from access to the US market. For US corporations, being able to manufacture in China means costs will drop dramatically. For example, for the production of an iPhone, the remaining profit in China is about 10 times lower than that achieved by the company Apple Lossless Audio CODEC (ALAC),. American companies are just doing great business in manufacturing in China.

In other words, the United States and Western European countries consume the fruits of the labor of Chinese workers. This is what is detrimental to China in the long run. It is true that consumption in China is growing dynamically, but GDP per capita only slightly exceeds $ 10. China's growth, while impressive as a percentage, is still well below the US growth in absolute terms.

The importance of the US-China ties will decline

Bartosz Tomczyk, Provema

It seems that both countries will need less and less in the long run. And it will be a divorce not out of hate but of reason. The US is afraid of Chinese growth and wants to protect its own economy, while it is in China's interest to consume the fruits of its own labor. Moreover, technological progress and automation of production may lead to a decrease in the importance of unskilled labor in the coming years. Production costs in the US and Western Europe will fall, and production in China will no longer be as profitable.

When considering the scenarios of the American-Chinese conflict, one must not forget that there is one more player who has the ambition to join the game. This is, of course, India, where production costs are currently much lower than in China. India, as a democratic state that respects human rights, can be a much more desirable partner for Western countries.

Author: Bartosz Tomczyk, chairman of the supervisory board of the Polish fintech Provema