China and the US: the ties that bind


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Hello from Wellington. If it wasn’t for the coronavirus pandemic, perhaps the biggest running story of the past year would have been the great decoupling of the world’s two biggest economies, China and the US.

Much ink has been spilled elucidating this theme of a new cold war, but as we highlight in our main piece today the picture is nuanced, especially with the upheaval caused by Covid-19.

Our chart of the day looks at US LNG exports to Europe while the person in the news is Japanese prime minister Yoshihide Suga.

Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to trade.secrets@ft.com or email me at edward.white@ft.com.

Has US-China decoupling been overstated?

For several years now our correspondents across Asia have been reporting on issues that point to a new, defining story of our time: US-China decoupling.

Evidence of the downturn in trade relations, namely the Trump administration’s moves to curtail supplies to Chinese tech champions such as ZTE, Huawei and SMIC, has been glaringly obvious. Countries in the region have long taken the spiralling dispute seriously, with Taiwan in 2018 giving incentives to companies to move factories back home and the retreat from China, in favour of Vietnam, by South Korean tech giant Samsung.

But although the exceptions attract less attention, there have been recent developments that challenge the wider narrative. For many companies, while life has indeed become more difficult and the risks associated with dealing with Beijing heightened, business with China does continue, and at pace.

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For example Samsung Display, the world’s biggest electronics screens maker, confirmed on Tuesday that it had received the US licences needed to supply some screens for Huawei’s smartphone, in a positive signal that suppliers were able to navigate the new US sanctions. 

Beyond tech, the financial world also bears witness to ties between the US and China tightening, not fraying.

Just as Beijing and Washington clash over arms sales to Taiwan and other geopolitical flashpoints, Wall Street groups including JPMorgan Chase and Citigroup have won approvals to expand their China businesses while foreign institutional investors have been mopping up Chinese onshore bonds. With record foreign demand for Chinese assets, the international role for the renminbi is expanding.

Samsung Display has secured US licences needed to supply screens for Huawei’s smartphone, a signal that suppliers are able to navigate new US sanctions © Noel Celis/AFP/Getty

A sample of trade and economic data also paint a similar picture of growing integration. Beijing’s comparatively swift handling of the pandemic and subsequent return to growth — while the US and Europe battle fresh surges of the virus — is only deepening countries’ reliance on China as the world’s growth engine.

Taiwanese exports — the majority of which are components for electronics and telecoms, and are shipped to China — recently hit their highest ever monthly levels. This week South Korea, another economy which is highly exposed to China, reported its sharpest quarterly gross domestic product increase in a decade, and as far back as June Australia reported a record trade surplus after a surge in Chinese demand for commodities.

“US corporations spent the last 40 years perfecting and optimising the global supply chain . . . [but] disentangling US-China supply chains and trade relationships will prove both difficult and costly,” writes Jack Ablin, chief investment officer at Cresset, a US wealth manager.

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Of course, uncertainty still abounds and much hinges on the outcome of the US election. But whatever happens, the above examples underscore that economic decoupling is not so simple in practice.

Charted waters

Soaring US production in recent years has allowed liquefied natural gas exports to take off across the Atlantic Ocean. But as energy reporters Myles McCormick and Derek Brower point out, exports to Europe — the biggest importer of LNG in the world — are coming under threat as perceptions of the country’s upstream oil and gas industry deteriorate. With the EU having launched a methane strategy earlier this month that toys with the idea of imposing standards on gas imports to the bloc, exporters are nervous. Although industry executives argue that the bloc’s imports from Russia can hardly be described as environmentally friendly, the image of US fuels on the far side of the Atlantic has plummeted: not good in an increasingly climate conscious world.

Column chart: US LNG exports to the EU have taken off in recent years

Person in the news

Yoshihide Suga intends for Japan to become carbon neutral by 2050 © Dita Alangkara/AP

Who is it?

Yoshihide Suga, Japan’s new prime minister

Why is he in the news?

Suga used his first policy speech to Japan’s Diet to announce plans for the country to become carbon neutral by 2050 — a big shift in energy policy.

Japan is heavily reliant on fossil fuels, especially as many of its nuclear reactors have been kept offline after the 2011 Fukushima disaster. Although Suga’s announcement was accompanied by little concrete detail, the direction of travel will concern oil and gas exporters including Australia and Indonesia. It has already put pressure on South Korea to follow suit with a similar pledge.

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Don’t miss

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  • The fear that Europe is becoming bogged down in a Japanese-style cycle of weak growth, negative interest rates and sub-zero inflation is expected to dominate discussions among ECB policymakers this week, even if they are likely to take no immediate action in the latest monetary policy decision on Thursday.
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  • Policymakers must address urgently the amount of debt plaguing the UK, the US and the global economy, and the impact the growing status of China as creditor to both the west and the developing world will have on that, economist Dambisa Moyo writes.
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Tokyo talk

The best trade stories from Nikkei Asia

  • Trump may prove to be prophetic in his questioning of Washington’s postwar role in Asia: at a moment when, more than ever, countries in the region want the US to play a balancing role against China, America itself, or at least American voters, may be less interested than ever.
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  • China plans to make all new vehicles sold in 2035 “eco-friendly”, a goal which is expected to benefit Japanese carmakers such as Toyota that specialise in hybrid engines.
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