Media  Global Economy  2023.10.31

Tensions between Washington and Beijing are likely to affect all East Asian economies in the long term

Le Monde on October 2023

This article was initially published in French in Le Monde newspaper on 16. October 2023, as part of a series of monthly columns on Asian economies. The original article can be found here:

Technology/ Innovation Trade Policy

Column by Sébastien Lechevalier, Professor at Ecole des Hautes Etudes en Sciences Sociales (EHESS, Paris) and International Senior Fellow at the Canon Institute for Global Studies (CIGS, Tokyo).

In his column, researcher Sébastien Lechevalier reports on a Japanese study into the consequences for East Asian companies of Washington's measures to limit trade with China.

Column. The geopolitical tensions between Washington and Beijing are reflected in measures taken by the USA to reduce its economic dependence on China and to block the spread of the most sensitive technologies to that country. These measures are not without serious consequences for the economic partners of these two countries, particularly in Asia ("Supply Chain Decoupling: Geopolitical Debates and Economic Dynamism in East Asia", Mitsuyo Ando, Kazunobu Hayakawa, Fukunari Kimura, Asian Economic Policy Review, August 2023).

These measures have become tougher over time: additional customs duties on Chinese imports, controls on US exports to China, restrictions on foreign companies selling products with US components...

Directly targeting Chinese companies such as Huawei, they aim less to protect American companies from the possible effects of disruptions in their value chains than to hinder those of their Chinese competitors. But their repercussions go far beyond these objectives, given the level of integration of value chains in sectors such as electronics.

Indeed, the "world factory" is not limited to China: the whole of East Asia is dominated by the international division of labor strategies of Japanese, Korean and Taiwanese multinationals. U.S. policy, guided by national security considerations, is creating major uncertainties for these companies from allied countries, both in terms of their investment strategy and the supply of components essential to their production.

However, economists do not always have the appropriate sources to accurately measure all these effects at microeconomic level. Above all, there is a discrepancy between announcements and reality: governments do not disclose all the exceptions enjoyed by certain companies.

Greater transparency

This is why the three Japanese economists cross-reference several types of bilateral international trade data (imports and exports) at more or less aggregate levels in their study. While sector-level trade data have so far failed to identify massive decoupling effects on value chains, several specific US export control measures affect international trade transactions at a more disaggregated level. This is the case, for example, with the most advanced semiconductors. Japanese, Korean and Taiwanese companies, leaders in these technologies, are directly affected.

What are the broader implications of this work? Firstly, even if the fear of a generalized decoupling seems exaggerated, this study confirms that geopolitics and economics don't mix, and all the more so as new US restrictions are implemented in the fields of supercomputers and advanced integrated circuits.

Secondly, not only will both the Chinese and American economies lose out, but all East Asian economies are likely to be affected in the long term. The latter must therefore protect the part of their economy not affected by the restrictions, through greater transparency and compliance with international trade rules, which is not always easy when, for example, it comes to distinguishing between technologies for military use and others.

Finally, European economies must learn from this textbook case by consolidating a common industrial strategy and committing themselves to protecting their companies from the consequences of the Sino-American strategic conflict.