There is a term that has been reported and written about in the international media regularly in the last few years (the years of and post the pandemic): ‘Decoupling’.
With the return of Donald Trump as the President of the United States, the term is poised for becoming a part of common lexicon amongst commentators of business and economy all over again. It has already begun doing rounds albeit rechristened as: ‘strategic decoupling’. The target is the usual suspect China of course.
Consider this: President-elect Donald Trump’s pick for the top trade position is Jamieson Greer. Greer has been known to share a tough stance on Beijing, and also played a key role in imposing tariffs on China during Trump’s first term. The president-elect has already begun unveiling policy plans, including a vow to impose 25% tariffs on all imports from Canada and Mexico, and an additional 10% on Chinese goods.
It goes without saying that Trump sees China as a “generational challenge” to the U.S. and has always advocated a strategic decoupling from the country.
DECOUPLING AS A CONCEPT
Coming back to the concept of ‘decoupling’ itself: It’s a deviation from ‘coupling’, which was a word commonplace for referring to business relations the US and China have had—despite the military and diplomatic rivalries—in the new (now old) world order that came about sometime in the mid-2000s. Not so long ago. With ‘coupling’, US manufacturers designed, researched, and prototyped products and commodities in the US, and then set up manufacturing units in China, for mass production or mass assemblage. It was due to ‘coupling’ that the iPhone and the MacBook Pro (and a host of other branded products), came at the prices they did in all the markets, all over the world. ‘Coupling’ helped US manufacturers stay competitive and Chinese masses get jobs.
With Donald Trump came the concept of ‘decoupling’, and with the ‘Chinese virus’, ‘decoupling’ began to gain acceptance in the US, as that is where it mattered.
It was an idea Donald Trump had set rolling the moment he came to power in 2016. Nobody really took it seriously then. Nobody believed it was practical. Even when he began bringing about measures to effect ‘decoupling’, most looked at it as little more than posturing. Trump did get things moving but it was slow and scattered. Now he’s back–more powerful than before–for a second term. And this time he has both the houses and the courts behind him.
With China pushing its ‘One China’ agenda…amongst some others (Belt-and-Road being another) aggressively over the last decade or so, there does seem to be a quiet, but definitely increasing, sympathy for Donald Trump’s “Make America great again” rhetoric.
How would decoupling make America great again?
It turns out that ‘coupling’ is a merely a derivative of the Ricardian Trade theory, and ‘decoupling’ is a corollary of mercantilism.
In 1817, David Ricardo introduced what became popular in economics textbooks worldwide as ‘The Ricardian Theory of International Trade’. This theory was based on concepts such as comparative advantage, specialisation, and opportunity costs.
Ordinarily every country produces goods it is efficient at producing and trades them for goods it is less efficient at producing. This was mercantilism, and it was nationalistic, and served to protect domestic industry. Ricardo postulated that if two countries, X and Y, are engaged in the manufacture of two commodities, A and B, and country X is more efficient than country Y in producing both those commodities, they can still trade with each other in these very commodities. Let’s say nation X is more efficient in the production of commodity A than it is in the production of commodity B. According to David Ricardo, in such a scenario, nation X would find it more profitable, and prudent, to concentrate all its resources, and expertise, in the production of A, and let nation Y manufacture commodity B, albeit less efficiently. Nation Y, in turn, would concentrate all its resources, and expertise, in the production of commodity B.
On the trading table, nation X, would find itself making more money selling A and buying B, than it would have, if it sold both A and B. The difference in its profits would be a result of its comparative advantage, and the cost it would have incurred in the production of product B—albeit more efficiently that nation Y—that it diverted to the production of product A, would be its opportunity cost.
The less efficient, nation Y, would enjoy the advantage, and opportunity, of simply finding itself on the trading table. With time they would excel in the production of product B, which nation X would—as time went by—lose its comparative advantage on, not just within itself but also with nation Y. Consider this closely and you’ll begin to realise the path China and Japan followed; Japan post World War II, and China more recently. Ricardo did not account for the advantages of time and work force (and communism…but hush).
That explained, let’s come back to ‘decoupling’ of the US and China. To put it simply, it would result in a considerable reduction of interdependence between there superpowers. It would also reduce their combined hold on world economy (no matter how much they would like to believe otherwise).
Both being military and economic superpowers, this ‘coupling’, had let both nations dictate the structure, direction, and even the fortunes, of international trade and economics for most part of the last few decades. This was the New World Order that came about after the collapse of the Soviet Union (not immediately). A bipolar world with the US and China in pole positions.
Europe did threaten to convert it into a tripolar one–the Modi’s India now seems to be attempting–which it almost succeeded in doing, till Putin came along with his own ideas of dealing with NATO and the west. Its own ancient civilizations revolted against it, one after another. It began with Greece (they crashed), followed by Britain (Brexit). The Ukraine war was the last straw.
THE EMERGING WORLD ORDER?
With ‘decoupling’, the next world order may still be bipolar, albeit in a very different way. American companies, that had set up manufacturing facilities in China, due to lesser costs of production (read cheap labour), will bring back production to their own shores. Their products would become costlier.
Here’s where emerging economies–India primarily–have been instruments (and pretty aggressively) in filling up the void. Prices of Iphones and Macbooks are still not out of the reach for most GenZ executives.
China and some other developing nations like it (read India), may have a little advantage over first world nations like the US, in the post ‘decoupling’ world. With most first world multinational corporates having the production shop floors of their goods located in China, and some other developing nations (read India), China and these nations (read India), now possess manufacturing and technical know how that is pretty much on par with first world nations. The developed world will still have the advantage of patents, but with ‘decoupling’ would come protectionism, and third world nations with large domestic markets may be tempted to throw patents to the wind in their own markets (which way China would go is anybody’s guess).
China, though, by all realistic calculations, will have a disadvantage too, post ‘Chinese virus’. The world would–as it has already begun to–trust it that much less.
This advantage, directed smartly, may just have the next world order become witness to a global marketplace replete with nationalism, and coupled with protectionism. A world where nations, and their products, would compete hand-in-hand, with other nations, coming to the same market hand-in-hand with their products. Nations would take nationalistic pride in what they produce, and some of them would work towards producing everything. In the ideal world, a self dependent nation and marketplace is potentially immune to global disturbances. An ideal world is what every nation would aspire towards, within its shores, in such a scenario.
Consider a world like this—in it’s extremity, of course—for a moment.
Decoupling Marketing and Advertising
What would marketing and advertising look like over there?
Think Field Marshal Sam Manekshaw, working out the strategies of penetrating the Chinese markets at Dabur India. General Montgomery doing the same at Rolls Royce (they’ll definitely have gotten it back from the Germans), and General Eisenhower, along with Commander Ulysses S Grant, doing something similar in the boardrooms of Kellogg’s.
Advertising punch lines for Toyota may sound something like: “Designed with the Art of Zen at its heart”; while the commercials for the Mustang may all begin with the sound of the gunshot.
There will be inexpensive products from large developing nations (inexpensive only within their own shores), and expensive products from first world nations (expensive everywhere, only more expensive outside their shores). Both these categories of nations and economies will impose exorbitant trade duties on imports from one another in order to effect a level playing field in their respective markets. The first world nations for the sake of price, the third world nations on account of brand appeal and values.
From where I stand, if the efficiency of local industry and the quality of locally manufactured products improves in developing nations as a result of ‘decoupling’, we’re all the better for it. Wonder if that’s what Trump 2.0 is really aiming towards…
President-elect Donald Trump’s pick for the top trade position is Jamieson Greer. Greer has been known to share a tough stance on Beijing, and also played a key role in imposing tariffs on China during Trump’s first term. The president-elect has already begun unveiling policy plans, including a vow to impose 25% tariffs on all imports from Canada and Mexico, and an additional 10% on Chinese goods.
It goes without saying that Trump sees China as a “generational challenge” to the U.S. and has always advocated a strategic decoupling from the country. Economy Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
