At present, many free nations are closely linked with the Chinese economy. In addition to being the world’s largest manufacturing hub, China is also an enormous market, a supplier of critical minerals, and a core player in global supply chains for intermediate goods. As such, completely severing economic ties with China (decoupling) is prohibitively difficult, both from the realistic viewpoint and from the perspective economic rationality.
In fact, not only the United States but also Japan, Europe, South Korea, Taiwan, and ASEAN countries are closely interlinked with China through trade, investment, and production networks. For instance, Germany’s auto industry, South Korea’s semiconductor exports, Australia’s resource exports, Japan’s machine tools and chemical materials industries, and ASEAN’s manufacturing industries would not be economically viable without the Chinese market, at least in the short run.
However, it is also the case that in recent years, China has become increasingly inclined to use economic relations, not as purely commercial relations, but as tools to exert political influence. For instance, China’s restrictions on rare earth exports to Japan, economic sanctions against Australia, economic pressure on Lithuania, retaliation against South Korea over the deployment of the Terminal High Altitude Area Defense (THAAD) system, and restrictions on imports from Taiwan are telling examples of how economic interdependence can turn into security vulnerabilities. This is a structure in which dependence on global economic networks can per se be used as a coercive tool (“weaponized interdependence”[4]).[5]
As such, what is required of free nations is not complete decoupling from the Chinese economy but strategic dependency management. More specifically, this is a concept that calls for reducing single-point dependency on China through various means, such as diversification of supply sources of critical materials, realignment of supply chains, production sharing among friendly nations (friendshoring), joint stockpiling of strategic materials, stricter technology control to prevent leakage, mutual assistance in the event of retaliation from China, and prior consultations among friendly nations on the red lines for sanctions against China.
What is of particular importance is the idea of controlling dependence to an acceptable level instead of completely replacing China. A realistic approach would be to pursue selective derisking, which is to significantly reduce dependence in the areas of cutting-edge advanced technologies and those directly linked to security, such as semiconductors, AI, quantum technology, telecommunications, space, and defense-related materials, while continuing to rely on China, to some extent, for consumer goods. Actually, recent policies of the United States, Europe, and Japan show that they are making a conceptual shift from decoupling to derisking. The intention is to recognize and properly manage strategic vulnerabilities instead of keeping out the Chinese economy.
Another important aspect is to enhance the mutual substitutability of free nations. It would be possible to reduce dependence on China without causing economic disruptions, if the free nations could create a mutually complementary supply chain among themselves, for instance, with Japan producing semiconductor materials, Taiwan manufacturing advanced semiconductors, the United States designing chips and offering AI technologies, the Netherlands manufacturing semiconductor exposure equipment, Australia supplying rare earths and minerals, Canada supplying energy and resources, and ASEAN countries serving as distributed production bases. Emerging international partnerships on guaranteed floor prices for certain rare earths can be cited as a specific example of recent developments toward that end. From China’s point of view, the easiest to deal with is a situation in which countries individually rely on the Chinese market. Thus, the formation of such a network for mutual economic assistance among the free nations would significantly reduce the effect of China’s economic coercion.
Accordingly, the management of dependency on China under the concert of free nations is not a mere economic policy. It should be understood as a long-term strategic vision that integrates economic, technology, and security domains and should be referred to as an economic version of NATO.[6]