Fortune - 04.2020

0

10% U.S. GOODS

IMPORTED

FROM CHINA

2017 2018 2019 1990 2019

CUMULATIVE CHANGE IN TRADE BETWEEN THE

U.S. AND CHINA SINCE 2017

COMBINED U.S. AND CHINA FOREIGN DIRECT

INVESTMENTS

U.S. GOODS

EXPORTED TO CHINA

SOURCES: U.S. DEPARTMENT OF COMMERCE; RHODIUM GROUP

–4.6%

–8.3%

0

20

40

$60 BILLION

2000 2010

$9.92 B.

16 FORTUNE APRIL 2020

FROM THE MOMENT it erupted in

Wuhan, China, the COVID-

virus has proved particularly lethal to

patients with the prior, chronic ill-

nesses often described as “underlying

health conditions.” Now the contagion

is having a similarly grim effect on

the U.S.-China economic relation-

ship—where accumulated mistrust

and resentment have created un-

healthy conditions of a different kind.

As the virus shakes the world’s

business community, sending global

stocks into or close to bear-market

territory, it’s easy to forget that many

of the first economic warning signs

came from U.S. companies with

significant China exposure. Apple

and Nike reported supply-line dis-

ruptions. Ford, General Motors, and

Tesla shuttered factories in China

and fretted over shortages every-

where else. Starbucks and Walmart

closed Chinese stores, while Disney

suspended operations at parks in

Shanghai and Hong Kong.

At minimum, the chaos has

prompted U.S. investors and

executives to rethink the wisdom

of concentrating supply lines in

China and relying heavily on Chinese

consumers. More broadly,

the epidemic has added

kindling to a smoldering

debate about “decou-

pling”—the idea that after

four decades of stitching

the U.S. economy ever

more closely to China’s,

the time may have come to

pry them apart again.

Decoupling implies a

full split, and few busi-

ness leaders are willing to

use the “D” word on the

record. But proponents of

a more distant relation-

ship, including some of

President Trump’s top

economic advisers, have

seized on the contagion

as proof of the dangers

of doing business in a

secretive, Communist-

controlled economy. Over

the past few weeks, White

House trade adviser Peter

Navarro has called the

outbreak a “wake-up call,”

while Commerce Secretary

Wilbur Ross predicted it

would help bring manu-

facturing jobs back to the

U.S. Even those who favor

continued engagement

warn that the virus may

hasten a decisive fracture

in relations already frayed

by three years of hostile

rhetoric over matters of

trade, technology, national

security, and human rights.

Trump and China’s

Xi Jinping in December

reached a “phase 1” deal

that puts trade hostilities

on hold. But escalating

conflict had already led

U.S. businesses to reroute

orders worth hundreds of

billions of dollars to other

countries, in industries

from textiles to toys. Huge

electronics retailer Best

Buy has suggested that it

will reduce products made

in China to 40% of the cost

of goods it sells, down from

60% in 2019. In a recent

earnings call, CEO Corie

Barry called the corona-

virus “one more piece of

evidence that will continue

CONSCIOUS DECOUPLING

The U.S-China economic relationship had begun to lag well before the coronavirus outbreak, amid tensions over trade.

DEC.W.0420.XMIT.indd 16 FINAL 3/10/2020 5:59:34 PM