How Economic Breakups Happen

As I wrote four years ago, "How China and the United States – and their radically different versions of government, economics, and politics – cooperate moving forward will be the central test of my lifetime." The answer is becoming more apparent as both sides ratchet up pressure on friend and foe alike.

Led by the U.S., the G-7 — Canada, France, Germany, Italy, the U.K., Japan, and the United States — is reorganizing large parts of its national economies in the face of China's growing authoritarianism. Having built up decades of long-term exposure to what the Economist and many others call "the world's factory," several factors have spurred the great awakening among Western allies. As the WSJ reports:

Russia’s invasion of Ukraine changed how Western powers think about their strategy toward China, another geopolitical rival and a close partner of Moscow. Russia throttled natural-gas exports to Europe during the war, destabilizing global energy markets.

The Group of Seven advanced democracies are growing concerned that China, a dominant supplier of many goods and materials, could similarly cut off key exports in the event of a conflict or another pandemic, according to top Western economic officials. They also worry that Western investment and expertise, if left unrestricted, could help develop Beijing’s military.

Coordinating the breakup

While Trump taunted China like an elementary school bully, President Biden believes allies matter and is working to build a broad coalition to counter Chinese aggression. More from the WSJ:

U.S. officials are hoping to rally the rest of the G-7 behind the proposal to restrict investment into China. President Biden and European Commission President Ursula von der Leyen committed to taking steps to prevent capital and knowledge from fueling the militaries of their strategic rivals during a meeting in Washington last month.

On trade, some Western officials see China as already engaging in hostile acts. China imposed informal trade embargoes on Australia over its calls for an inquiry into the origins of Covid-19 and on Lithuania for allowing Taiwan to open a diplomatic outpost under the name Taiwan.

The 800-pound guerrilla

China's commitment to take the independent country of Taiwan — by force if necessary — is the backdrop for these rapid economic changes. In short, no country wants to be overly dependent on China (as they currently are) if its forces end up in a hot war.

This conflict may arrive sooner than people like to believe. Just ask the Taiwanese.