Decoupling Chimerica: Consequences for the European Union

December 19, 2019

The People’s Republic of China experienced a tremendous economic development within the last four decades. The increased economic power and political weight of China are challenging the USA and EU. The strategies used by China for its own development, e.g. broad-based industry policy with forced technology transfer, are perceived as unfair not only in the US but to a large extent also in the EU. This development, in combination with the trade imbalances, are resulting in the current conflict between China and the US. The term decoupling was introduced to describe the cutting off of economic ties between China and the US as a consequence of the conflict.

Accordingly, this article analyzes whether a decoupling is going on, and finds that China and the US are each other’s most important trading partners. Trade data in value added reveals even closer links between both economies through global value chains. This is especially true for ICT and electronics. However, recent monthly data reveals that both the US share in Chinese imports and the Chinese share in the US imports has been decreasing. The trade war has obviously negative consequences on trade between China and the US. At the same time, this data seems to offer some evidence that trade diversion in favor of the EU might be taking place. But trade is not the only field where a decoupling takes place. While there are no patterns yet of a changed behaviour by US investors in the People’s Republic of China, there are signs of a changed Chinese investment behaviour concerning FDI.