There’s a ‘real danger’ of China developing separate systems from the rest of the world, expert says

SINGAPORE — The cost of a U.S.-China “decoupling” would be high, but that does not mean Beijing will not choose to create systems that are “mutually exclusive” from the rest of the world, an expert told CNBC this week.

“There is a real danger of China and … much of the rest of the world developing separate financial systems for things like payments of international debts and payments for trade,” said Robert Daly, director of the Wilson Center’s Kissinger Institute on China and the United States.

China could also develop different technological systems, he told CNBC’s “Street Signs Asia” on Wednesday. “If that happens, if you have mutually exclusive financial, economic as well as technological and digital systems, then you really will be talking about decoupling and China going it alone to a considerable degree.”

That may happen even though Beijing knows the cost of decoupling would be high for China, the U.S. and the rest of the world. China does not welcome decoupling, but will not “back down in the face of it,” he said.

Daly said U.S. President Donald Trump has made “maximalist, extreme threats” during his term, but usually “backs off” after considering the consequences. 

“There are certain people in the White House would like to technologically decouple from China and would like not to supply it with any chips that could help build China’s comprehensive power,” said Daly. “But they don’t want to bankrupt Qualcomm, they don’t want to harm American farmers who’ve already been subsidized by the American tax payers to the tune of $28 billion plus because of the trade war.”

Still, he describes decoupling as “more than just campaign rhetoric” from the Trump administration.

“I think it has that feature,” he said. “It is a device to convince American voters that he, President Trump, is looking out for them and he is tougher on China than (Democratic presidential nominee) Biden.”

According to Reuters, Trump on Tuesday told supporters at a rally that “Joe Biden’s agenda is made in China,” while his own “agenda is made in the U.S.A.” He also called Biden a “globalist sellout.”

But beyond politics, there “really is deep distrust of being too closely aligned” with China, especially when it comes to rare earths, technology and medical or pharmaceutical equipment, he said. At least a partial decoupling in some of these sectors is a “very real” possibility.

Americans want to be more self-sufficient and certainly not bound to China, he added.

“That desire is real, it’s lasting and it will continue in some form, even under a President Biden if we get one.”