Strategic decoupling from China solves continuous IP theft and strengthens national security.

Prior to the signing of the Phase-One Agreement, USTR Lighthizer reiterated his emphasis on a “trust but verify” approach to ensuring compliance. “Much still needs to be done before an agreement is reached, and, more importantly, after it is reached, if one is reached (Rosenbaum, 2019). That foreshadowing proved telling, in that President Biden’s appointed USTR, Katherine Tai, expressed a continuing commitment to protecting American manufacturers’ IP and lamenting that the Chinese have yet to make good on the Phase-One Agreement (Cohen, 2022). The bipartisan exasperation has resulted in a budding consensus that strategic decoupling of the two economies might be in the United States’ best interest. Such an approach would require a careful, case-by-case assessment of the costs and benefits of continuing to jeopardize IP rights versus the financial rewards that accrue to companies making those decisions.

The most sensitive cases involve matters of national security. As a result, the U.S. government has expressed a prerogative to prohibit trade in the event it deems the trade to involve an unacceptable risk to U.S. defense concerns. Writing in the conservative National Review, American Enterprise Institute China expert Derek Scissors points to a protocol that requires technology transfers to the Chinese military from the civilian tech sector:

Technology with dual military and commercial uses must be transferred on demand from Chinese firms to the People’s Liberation Army under the PRC’s much-discussed “military–civil fusion,” a policy and a term created by the Chinese government [Scissors, 2021].

The simultaneous benefit that a declaration of intent to decouple carries with it is that designating a trade issue as a matter of national security places the dispute beyond the scope of the WTO. However, such a designation carries the risk of inspiring other countries to claim the same exemptions, as Japan, Russia, the United Arab Emirates, and Saudi Arabia have already demonstrated (Bateman, 2022).