The U.S.-China decoupling arrives (Axios)

Intro LO:

Last Friday, I published a Dutch blog on this topic: USA: Europe must choose between America and China !? The underlying Dutch article referred to a recent Irish Times article as its source. Subsequently, an Axios Macro article (see below) arrived the next day: The U.S.-China decoupling arrives.

In my view, such a decoupling makes no logical and/or rational sense. It’s all about emotions and ideology.

Why??

China is needed for its cheap goods, including its raw materials. We need USA for the quality of its services (eg, BigTech, fintech). Countries do not need, want or believe in American goods (eg, low quality). Many countries do not need, want or believe in Chinese financial services due to its debt-trap diplomacy.

Hence, a decoupling between American services and Chinese goods is – essentially – impossible. Any country needs, wants and believes in goods and in services:

• Needs: countries need goods, including raw materials (eg, China, Greenland minerals, Ukraine minerals);
• Wants: countries want financial and technological services (eg, loans, web);
• Beliefs: countries prefer pragmatism over ideology.

Obviously, time and geography could – and thus would – change the above (eg, deep sea mining, lunar mining, atmospheric mining). Moreover, substitution would also solve such demand and supply issues (eg, replace Elon Musk’s Starlink by the French Eutelsat).

Trump’s USA can only afford a decoupling from China at the expense of high inflation, as well as a massive (??) lack of supply.

Axios Macro title: The U.S.-China decoupling arrives

By: Neil Irwin and Courtenay Brown
Date: 16 April 2025

“What has been a yearslong economic risk is now reality: The tit-for-tat tariffs effectively end U.S.-China bilateral trade, the final step in the economic decoupling of the world’s juggernauts.

• That is the new warning from the World Trade Organization today in the release of its latest global outlook.

Why it matters: The sudden divorce of the two economies might mean profound pain for American workers and the nation’s wealth built on the back of a strong trading relationship.

• A prolonged trade fight risks splitting the global trading system into two distinct blocs — countries that trade with the U.S. and those that trade with China.

Stunning stat: The WTO anticipates trade between the U.S. and China will screech to a halt this year.

• Trade of merchandise between the two countries will drop by 80%, a drop that would have topped 90% without the White House’s recent exemption for smartphones and other tech goods, according to WTO director general Ngozi Okonjo-Iweala.

What they’re saying: “The drop in U.S.-China trade of the magnitudes we are talking about is virtually tantamount to a decoupling of the two economies,” Okonjo-Iweala told reporters this morning.

• “This is a phenomenon we’ve talked about before … and now we’re seeing it emerging,” Okonjo-Iweala added. ” I think this is one of the most worrying factors for us.”

The big picture: The total volume of goods traded around the world is expected to contract by 0.2% this year — an abrupt turnaround from the near 3% increase last year.

• The decline in world trade would be as large as 1.5% in 2025 if Trump reinstates the reciprocal tariffs that are now on pause.
• Consider the counterfactual: If both trade and trade-policy uncertainty were low, the WTO says, world trade would grow by 2.7% in 2025.

Threat level: The group anticipates the trade slowdown — topped with uncertainty about the tariff endgame — will spill over into weaker global growth.

• The WTO expects GDP growth will reach 2.2% in 2025, 0.6 percentage point below its initial forecast that did not account for the global trade war.
• That will nudge up slightly to 2.4% next year, “substandard compared to recent history,” it writes in the release.

Between the lines: The Trump administration said it would hold trade negotiations with a slew of nations facing reciprocal tariffs over the next 90 days.

• But China is the exception. The high, country-specific rates have been paused for all countries, though tariffs on China have only increased.

What’s new: Trump ordered the Commerce Department to investigate America’s reliance on critical minerals from other countries.

• The investigation could further crack down on trade with China, which produces the majority of all critical minerals, many of which are used in defense, energy and electronics sectors.
• Any tariffs that stem from the investigation would “take the place” of current reciprocal tariff rates, according to the executive order Trump signed yesterday.

What to watch: The WTO says countries should cut back excessive reliance on other trading partners, an admission that Trump-like protectionism is the new threat.

• “The U.S. has a point when it says too many countries are dependent on its market, or the production of some critical inputs are too concentrated in certain sectors and geographies,” Okonjo-Iweala says.
• “Building global resilience requires interdependence, not over dependence.”

The bottom line: The fear of economic devastation from U.S.-China decoupling helped blunt Biden-era trade policy.

• Trump is taking an unprecedented gamble — one that WTO economists admit means its forecast might not be gloomy enough.”

Sources:

• Axios Macro, 16 April 2025: 1 big thing: The U.S.-China decoupling arrives
• The Irish Times, 15 April 2025: US to demand EU pulls away from China in return for cutting tariffs
• Algemeen Dagblad, 15 April 2025: Gelekt document onthult ultiem doel handelsoorlog Trump: ‘EU dwingen te kiezen tussen VS en China’