Tariffs are no longer China's biggest problem in the trade war
Now it seems like trade deal optimism is back in the air. New formal talks between the U.S. and China have been announced for next month, and there are even high-level Chinese sources suggesting
a breakthrough could occur at those meetings.
Given the timing of the change in tone, it seems more likely that what's making the difference is a realization on both sides that there's another way this trade war could end – and that possible ending is one the U.S. is very unlikely to lose.
That alternate ending is summed up in one word: decoupling.
The decoupling push is quite different than any U.S. efforts to get China to open up more of its economy to American companies. Instead, it focuses on reducing America's extremely heavy reliance on China for so much of its manufacturing needs.
Even if China's economy weren't so closed off to so many American goods and services, a strong argument has long been made that the U.S. needs to diversify its sources for imports. While finding those new sources wouldn't necessarily do anything to dent America's trade imbalances, it would reduce the risks of a major disruption to the U.S. economy based on disputes or other problems connected to a single foreign country.
So what happened between Aug. 23 and this week's trade optimism-fueled rally?
Thanks to some major news about
Google, the world got its clearest notice yet that U.S.-China decoupling has gone from just a theory to something that's really happening.
Just five days after that trade war flare up, the Nikkei business daily reported on Aug. 28 that
Google is shifting its Pixel smartphone production to Vietnam from China starting this year and that the company is also looking to shift some of its smart home speaker assembly to Thailand.
It's not that Google is the first U.S.-based company to announce some shift away from China;
more than 50 other big names have moved out or scaled back.
For China, further decoupling has to be a terrifying scenario. The U.S. remains the world's number one consumer market, and America is now clearly looking to shop around. Beijing needs to come up with some kind of offer to slow this trend either at the trade negotiating table or in some kind of arrangement with the U.S. manufacturers that are still in China.
Meanwhile, the benefits of American trade diversification and continued U.S. economic strength are giving the Trump administration the gift of time. This is the opposite of the conventional wisdom that China and president-for-life Xi Jingping have the advantage of waiting out President Trump, who supposedly needs a trade deal sometime before next year's elections.
