One must hope that China and the United States will eventually arrive at an understanding that great-power competition does not preclude cooperation to resolve major global challenges. The main challenge will be to avoid a damaging derailment during what is likely to be a long and bumpy journey toward this destination.

LAGUNA BEACH – Not a day seems to pass without further evidence of the mounting economic tensions between China and the United States, the world’s two largest economies. This growing antagonism will have a bigger immediate impact on China than on the US, as bilateral decoupling fuels a broader ongoing process of . And the negative spillover effects for a subset of other countries – which I call the dual-option economies – could be particularly significant.

Even from a purely economic perspective, it is hard to envisage any durable abatement of Sino-American tensions in the near future. And that is before factoring in national-security issues, let alone those relating to technology and human rights.

The economic and financial implications of COVID-19 are uniting three segments of the US economy in decoupling from China. This dynamic is unlikely to abate anytime soon and will be mutually reinforcing, meaning that one plus one plus one adds up to more than three.

For starters, the US government recently escalated a long-running tit-for-tat conflict by imposing bilateral economic and financial sanctions on China, with explicit bipartisan backing from Congress. The blame game over the pandemic serves to reinforce the tougher US stance, which is unlikely to change, regardless of the outcome of this November’s presidential and congressional elections.

America’s corporate sector also will drive decoupling, as more US firms look to tilt away from efficiency and toward resilience. This entails “near shoring,” “reshoring,” or “localization,” which implies moving Western supply chains out of China. Some industries, such as pharmaceuticals and technology, will likely come under pressure from governments in the US and elsewhere to do the same.

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