Due to emerging great power competition, international production networks have become regarded by states as sources of vulnerability which amplify the risks of asymmetric dependence on adversarial powers. Consequently, the US, China, the EU and East Asian states have made attempts to reduce their reliance on production outsourced to rivals.
These attempts to reshore production and ‘decouple’ from adversaries have yielded limited results so far for four reasons, which are often overlooked in the International Relations literature.
First, the differences in competitive advantages between developed economies and China mean that competing great powers possess heterogenous coercive capabilities in different economic sectors, limiting their ability to weaponize interdependence.
Second, the fragmented and networked nature of manufacturing constrains the degree to which states can influence profit-seeking non-state actors in order to shape the international economic architecture.
Third, decoupling would require a significant reorganization of the domestic economies of great powers, which faces significant political economy constraints.
Fourth, decoupling carries significant second order costs for great powers’ allies. East Asian and Eastern European states have based their economic development on participation in international production networks dependent on Chinese inputs and demand. Consequently, the disruption of these networks poses a challenge to their welfare and their value as allies.
This paper presents empirical evidence to support the first two hypotheses and discusses how the empirical data manifests in the political constraints described in the third and fourth hypothesis.