Democracies’ ‘de-risking’ strategies for trading with China compared in new study

LAWRENCE — Economic security or economic freedom?

That is the tricky choice faced by the world’s advanced democracies, particularly when navigating the problematic trade relationship with China.

“We’ve seen a dramatic shift away from economic freedom toward a focus on economic security, which is driven by apprehensions about technology and the rise of China,” said Jack Zhang, assistant professor of political science at the University of Kansas.

“In the past, economic management centered on efficiencies and growth. Now the danger is we’re shifting to a paradigm shaped by national security concerns, so much so that it threatens the normal operations of the rest of the economy.”

His new paper, titled “The Politics of Securitization: US and Japanese Legislative Responses to De-risking with China,” compares the “de-risking” strategies both countries employ by analyzing legislative measures to identify products considered risky. The research highlights the convergence in American and Japanese economic security policies, with both focusing on common strategic goods such as semiconductors and rare earths.

The research appears in Law & Geoeconomics.

Co-written by KU doctoral candidate Timothy Cichanowicz, the paper spotlights the U.S. and Japan because in addition to being two of the leading economic actors in the world, they are also the major drivers of many such security policies.

“The Japanese have been more committed to this idea of a ‘small yard, high fence’ approach. A small set of technologies are considered vital to national security. But they want to make sure that doesn’t hamper overall trade,” Zhang said.

But on the U.S. side, he said he believes Congress risks overdoing economic security by passing policies in the name of national security that are really about something else, whether it’s protectionism or identity politics, that nonetheless carry significant economic costs.

Meanwhile, the executive branch has also contributed to this trend, most notably through measures like the Trump tariffs.

“Many of these bills are essentially a knee-jerk response that’s somewhat xenophobic,” Zhang said. “Whereas the Japanese have been a bit more circumscribed in these policies. They are not trying to ban Chinese milk in the name of national security.”

Zhang and Cichanowicz utilize the term “de-risking” to encapsulate the strategies employed by both nations.

“De-risking is a catch-all category for all these different types of behaviors, including decoupling, reshoring, friend-shoring, ally-shoring. All are efforts to reduce the risk associated with international commerce,” Zhang said.

While surface-level convergence exists regarding economic de-risking, there are rather wide divergences toward how each country approaches this. For instance, the U.S. employs a wider set of tools than Japan. It also focuses on a wider set of targets, from consumer drones and electric vehicles to garlic and TikTok.

“Trade enhances the economy, yet helping economic growth of a potential adversary is potentially worrisome. That’s a common concern across the board, and it’s why countries tend to trade more with allies than adversaries,” Zhang said. “With China, there’s a new dimension that is relatively unique to the moment: technology. There’s a line you want to draw between things that are normal trade that you can conduct safely and things with military uses that you want to restrict.” 

Historically, this was easier to manage because the military pioneered breakthroughs such as the nuclear program, jet engines, ballistic missiles and the space program. Those technologies then diffused into the civilian space.

“Because of the rise of the information technology sector with AI and things like that, it’s the private sector that is now leading in the most critical areas of technology,” Zhang said.

A faculty member at KU since 2019, Zhang is also the founder and director of the KU Trade War Lab. His research explores the political economy of trade and conflict in East Asia. His past articles include “Political risk and firm exit: evidence from the US–China Trade War,” “In the Middle: American Multinationals in China and Trade War Politics” and “Measuring Chinese economic sanctions 1949–2020: Introducing the China TIES dataset.”

“Our research emphasizes how the U.S. is not alone in trying to think about these economic trade-offs between security and freedom. And it is productive for U.S. policymakers because other countries are facing some of the same challenges, maybe even more acutely,” Zhang said.

“So looking to other countries and trying to learn best practices is key.”