The Steady Transition to a United States-China Supply Chain Split

The four-year trade war between the United States and China has resulted in many companies bifurcating their manufacturing and product design pipelines into one for China and another for the rest of the world. This bifurcation has been done not only to avoid costly tariffs and trade restrictions, but also out of fear of heightened security risks of doing business with China. And while these supply chain transformations may outwardly seem like a byproduct of President Trump’s nationalism, they are actually the product of a decade of increasing divergence over civil liberties and growing economic competition between the United States and China, and would likely continue in some form under a potential Biden administration.

In 2017 and 2018, the Trump administration announced a series of new tariffs on Chinese manufacturing that dramatically increased costs and barriers for trade between the two countries. The policies were designed with the aim of decreasing Western dependence on Chinese imports and increasing domestic manufacturing. These series of executive actions eventually drove Taiwanese manufacturers like Foxconn and Wistron, which manufacture consumer electronics for major US companies like Apple, to bifurcate their supply chains. They spun off parts of their businesses to manufacture products solely for the growing and lucrative Chinese market, while rapidly moving their global-oriented manufacturing plants to new sites in Southeast Asia, India, and Latin America.

However, these changes have not just been limited to supply chains. In recent years, the United States has begun to clamp down on software and telecommunications equipment of Chinese origin running on American networks. Federal officials including members of Congress have cited fears that building networks using equipment made by Chinese manufacturers like Huawei or ZTE would give Beijing an unacceptable backdoor into US internet services and pose a heightened national security risk. A key example of this was the 2019 ban on Huawei’s 5G equipment and consumer electronics in the United States. This move eventually resulted in Google severing key mobile services like Maps and Gmail from Huawei’s Android devices. The United Kingdom replicated the United States months later by opting to stop use of Huawei equipment in its nationwide 5G network.

However, while the Trump administration may have accelerated this transition, a divide between US and Chinese product and manufacturing lines was always in the cards. The United States and China have long been at odds over digital rights and trade hegemony. In the 2000s, strict Chinese censorship laws prevented Google and Facebook from entering the Chinese market and paved the way for China-specific search engines and social networks like Baidu and WeChat to run in a self-contained bubble. And China was noticeably absent from the ultimately failed negotiations on the Trans-Pacific Partnership trade agreement, whose goal from the perspective of the Obama administration was to re-center supply chains and trade rules in East Asia around the United States and its allies. Given this history of difference over civil liberties and the continued economic competition between China and the United States, it is very unlikely that a President Joe Biden would change this ongoing supply chain bifurcation.

The long overdue split between global and Chinese product chains, driven by a continued US-China impasse over digital rights and trade dominance, could continue to decrease interdependence between the two countries. Should it succeed, this bifurcation will echo for decades to come in the global economy.