Two Systems, Two Spheres: The Slow, Painful Divorce of the US and China

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Two Systems, Two Spheres: The Slow, Painful Divorce of the US and China
Manoj Joshi
6 minutes ago
Given the level of interdependence, the process is likely to be slow but will manifest itself through higher costs, slower innovation and geopolitical tensions.
US President Donald Trump and Chinese President Xi Jinping. Photo: X/@Maks_NAFO_FELLA
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The US-China negotiations on a trade deal have stalled for the moment. According to reports, the US is angry that while it came up with a 90-day tariff truce at the start of the negotiations, China has not reciprocated, as it had promised to resume exports of rare earth minerals.
Last week's tirade by President Trump – accusing China of violating the interim agreement which he had provided to 'save' China from a bad economic situation – is a pointer to the intensity of the negotiations which could well be standing on the brink of a breakdown.
Even if a deal is struck, it is clear that a gradual decoupling of the United States and China is well underway, encouraged by the policies that began in the Trump-I administration, carried on by President Biden and now being adopted by Trump II.
This comes at a time when China has established its capabilities as a near-peer competitor of the US in a range of areas. In recent months, we have seen China testing two or maybe three sixth generation fighter jets, less than a decade after the US did so.
We have seen the arrival of Deep Seek, an AI large language model with significantly lower training costs as compared to its peers like Open AI's GPT-4. It also used one-tenth the computing power consumed by Meta's Llama 3.1.
Last week, the news portal Axios reported that China was now 'setting the pace in life sciences R&D', conducting more clinical trials and licensing new drugs as compared to US companies. This comes at a time when Trump is gutting the National Institutes of Health and bio-medical research in US universities.
The news from China on the technology front has been generally upbeat. In October 2024, Bloomberg News, in a special analysis, said that of the 13 key technologies tracked by their researchers, the Chinese had a world leadership level in five of them and was catching up fast in seven others.
The first list included UAVs, solar panels, graphene, high speed rail, electrical vehicles and batteries. In the second list were semiconductors, AI, robots, machine tools, large tractors, drugs and LNG carriers. The one area where the Chinese lagged was commercial aircrafts.
In June 2024, the Economist cited the Leiden Ranking of the volume of scientific research output, there are now six Chinese universities or institutions in the world top ten. The Nature Index put the number at seven.
Last week, the US announced that it would revoke visas for members of the Communist Party of China or for those studying in 'critical fields.' The administration has also announced a general policy of vetting future student visas, including their social media posts.
This could see a sharp decline in foreign students, especially the Chinese, in the coming years. As of 2024, there were some 277,000 Chinese students in the US. The US alleges that China uses US universities to advance its military and technological capabilities. The number of US students in China has already declined sharply from some 11,000 in 2019 to just 1,000 in 2024.
Trump's National Security Strategy of 2017 first identified China as a strategic competitor rather than a partner. The Biden NSS built on this notion and its NSS of 2022 declared 'The People's Republic of China harbours the intention and, increasingly, the capacity to reshape the international order in favour of one that tilts the global playing field to its benefit.'
It was the first Trump administration that launched a tariff war on China that morphed into a campaign of technology denial, a strategy that intensified in the Biden years.
Trump II took office with a promise to hit China with the highest tariff rates. After reaching the absurd point of 145% American tariffs on Chinese goods, and a reciprocal 125% on American products, the two countries are currently trying to work out more reasonable trade arrangements though the prognosis is not good.
But it is clear that the US policy of denial of certain high technologies, especially those relating to semiconductors and jet engines, as well as Chinese restrictions on some exports to the US will stay. In March, the Trump administration added over 80 companies, mainly Chinese, to the American blacklist making it tougher for US high-tech companies like Nvidia to do business with China.
For its part, China has long sought an autonomy of sorts with regard to technological dependence on the West. It has strategically promoted certain industries through its policies which range from subsidie to demands for forced technology transfer and outright espionage.
In addition, through its 'Thousand Talents Programme' it has obtained the services of scholars from foreign universities, including overseas Chinese, to push its own domestic research and development in critical areas.
The Make in China initiative of Xi Jinping that began in 2015 sought to have China dominating in 10 advanced industries that would have a 70% domestic market share by this year. In addition to robotics, it included advanced rail equipment, high tech maritime vessels, aerospace and aviation equipment, electrical vehicles and information technology.
Not surprisingly, this policy was strenuously opposed by western countries which had dominated the Chinese and global markets in these areas.
According to the Financial Times, the Chinese used a unique combination of industrial policy, subsidies and other state support coupled with private sector entrepreneurism and 'ferocious competition in China's vast market' to match and, in some cases, best foreign competitors.
It was the Chinese dominance of the industrial supply chains and exports that persuaded Trump to negotiate, rather than fight with China on trade last month. China today commands a full 29% of global manufacturing by value. Equally importantly, it controls critical supply lines for a range of key products.
The FT report also indicates that China has some way to go in achieving all four of its goals – reducing import dependence, cutting reliance on foreign companies, becoming the technological leader and achieving global competitiveness. It has done so only in high speed rail and electric power equipment. It has displayed a strong performance in robots, machine tools, agricultural machinery, electrical vehicles, aerospace equipment and biomedicine.
The one area in which China is weak is in the manufacture of commercial aircrafts. This is the reason the US has now decided to embargo supplies to the Chinese Comac C919, a commercial jet that is similar to the Airbus 320 and which entered service in 2023. The aircraft depends on western engines as well as other major components.
The Trump administration's policies appear to have chosen the worst path available to them. Instead of gathering an alliance of partners to confront China's trade practices, the US alienated most of them by targeting them first. Trump enunciated a policy of calling on industry to manufacture in the United States, yet, through his policies, he has sought to gut the US R&D establishment and its famed universities which were the source of the intellectual capital that has underwritten US technological dominance. His attacks on elite US universities are likely to drive talent to other countries, especially China.
Whatever be the case, the world seems headed for a decoupling of the two great powers, a policy that will result in the creation of two techno-spheres. This will be a messy and costly process and will inevitably extract a price from the global economy when countries have to confront two technology standards and two antagonistic supply chains.
Even so, given the level of interdependence of the two economies, the process is likely to be slow but manifest itself in the coming years through higher costs, slower innovation, supply chain disruptions and geopolitical tensions.
Manoj Joshi is a distinguished fellow with the Observer Research Foundation in Delhi.
This piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been updated and republished here. To subscribe to The India Cable, click here.
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