How to Get U.S. Companies to Leave China

How to Get U.S. Companies to Leave China

Rather than threatening American manufacturers, the Biden administration needs to offer them someplace better to go. 

We learned something very important over the four years of Donald Trump’s scuffle with China: However frustrated U.S. businesses may be with some aspects of Chinese policy, they are not ready to abandon the world’s second-biggest economy. That should be a lesson to President-elect Joe Biden and his administration. U.S. companies won’t be frightened out of China; they need to be enticed.

The simple fact is that, for many of America’s most important firms, China’s massive market and efficient supply chains are still too attractive to abandon, especially for the high-wage U.S. Precious few have left, despite much talk of “decoupling.” Foreign direct investment from U.S. companies into China has remained generally stable despite rising tensions, even ticking upward a bit in 2019 to $13.3 billion, according to data from the Rhodium Group. Meanwhile, the persistently large U.S. trade deficit with China testifies to the continuing reliance of the American economy on Chinese supply.

To be clear, full-on “decoupling” from China is neither a realistic nor desirable outcome. But decreasing American dependence on China, particularly for supplies of critical technologies, would be smart for both business reasons and national security. No U.S. administration can ignore the risk that China might weaponize supply chains that are based on the mainland. President Xi Jinping has openly suggested that China should ensure other countries remain dependent on Chinese supply in order to gain leverage and deter them from cutting off China from vital imports.