"On Day One" by CWP alum Eyck Freymann

July 11, 2024

Full economic decoupling from China is not possible or desirable today, but it may become necessary in some break-glass scenarios. Washington needs a plan to decouple from the People’s Republic of China (PRC) starting on Day One of a Taiwan crisis, both as a contingency plan and as a part of integrated deterrence. However, trying to force a hard decoupling through sanctions would not serve US interests, and the PRC would likely prove resilient. Instead, Washington should publicly prepare a plan to trigger “avalanche decoupling” on Day One as part of a wider program of economic recovery and leadership. Supply chains would stay as open as possible in the short term, but unilateral US actions would create inexorable momentum toward full decoupling over time. Avalanche decoupling would harness market forces and incentivize third countries to cooperate, including by helping to secure US borders against mislabeled PRC products.

To achieve avalanche decoupling, Washington would embrace four guiding principles:

  1. Impose no restrictions on noncritical supply chains on Day One, and thereafter give firms adequate time to reshore them.
  2. Sustain dollar hegemony and prevent the rapid internationalization of the renminbi (RMB).
  3. Refrain from asking other countries to decouple from the PRC; instead, build US decoupling into a wider program of economic support in response to the Taiwan crisis.
  4. Commit the United States to enforce its anti-PRC trade policy against third countries in a rules-based manner, subject to appeal and external adjudication.

Guided by these principles, we propose three policies to facilitate avalanche decoupling:

  1. Unilateral discriminatory trade policy, likely ratcheting tariffs or quotas to take imports from the PRC to zero over a period of years, citing the World Trade Organization (WTO) national security exemption.
  2. Unilateral currency market intervention against the RMB.
  3. The establishment with Core allies of an Economic Security Cooperation Board (ESCB), which would provide aid to third countries, collective insurance against PRC economic coercion, and a rules-based system to support and adjudicate US and allied trade policy against the PRC.

The plan would sustain support for a revitalized rules-based trading system across much of the global economy, while the United States and its Core allies (e.g., Japan, the United Kingdom, Canada, and Australia) decouple through national trade policy. Publicly developing the plan in advance, alongside Core allies, would give the United States an additional option for Day One. It would also show Xi Jinping that if he moved against Taiwan, most of the global economy would cooperate with Washington, leaving China impoverished and isolated, even if it triumphed in a Taiwan war.

Policy Recommendations

  • Congress should systematically evaluate the Day One Plan and compare it to alternatives.
  • Congress should introduce legislation authorizing the plan and leave it on the shelf as one of multiple options if the PRC moves against Taiwan.
  • US and allied diplomats should explain the plan to nonaligned countries, and to Xi.

 

"On Day One" - The United States lacks an economic contingency plan for conflict with China. Hard decoupling through sanctions is not viable. Instead, the United States should prepare a “Day One” plan based on economic leadership and recovery. By harnessing incentives and market forces, Washington and core US allies can trigger avalanche decoupling in trade while working with the interests of third states and preserving dollar hegemony and the rules-based trading system.

Monday, June 24, 2024 By: Hugo BromleyEyck FreymannResearch Team: China's Global Sharp Power Project


Eyck Freymann is a Hoover Fellow at Stanford University, where he studies the geopolitics of climate change and strategic deterrence in the Taiwan Strait. Trained as an economic historian and China specialist, he is also the Indo-Pacific Director at Greenmantle, a New York-based advisory firm, and a Non-Resident Research Fellow with the China Maritime Studies Institute at the U.S. Naval War College.

Freymann’s first book, One Belt One Road: Chinese Power Meets the World, is assigned on undergraduate and graduate syllabi at Harvard, Cambridge, Columbia, Peking University, and elsewhere. His writings on other current affairs topics have appeared in The Wall Street Journal, Foreign Affairs, The Economist, War on the Rocks, Foreign Policy, The Atlantic, and other venues.

Before Hoover, Freymann held concurrent postdoctoral fellowships at the Harvard Kennedy School’s Belfer Center and the Columbia-Harvard China & the World Program. He earned his doctorate in China Studies from Balliol College, University of Oxford; two masters degrees in China Studies from Harvard University and the University of Cambridge, where he was a Henry Scholar; and a bachelors degree cum laude with highest honors in East Asian History from Harvard College.


Photo Credit: By Chagai at English Wikipedia - Transferred from en.wikipedia to Commons., Public Domain, https://commons.wikimedia.org/w/index.php?curid=3839230

Eyck Freymann is a Hoover Fellow at Stanford University,