The Biden administration is doing what was expected of it on China: adopting a confrontational approach, referencing human rights, and rebuilding relations with international allies with military presence near China (the "Quad" partners Australia, Japan, India) and significant trade with China (the EU). A full-blown cold war between the US – and whoever it can pull into its orbit – and China is not feasible when there is such economic interconnection with China. But the path towards decoupling, at least in terms of trade and investment, if not climate and health polices, appears the one favoured by both Biden and the bipartisan Congressional consensus in the US. China's unhesitant response to US Secretary of State Antony Blinken's opening remarks in Alaska last week and to sanctions this week demonstrate China also fully expects this.
Much has been written about potential beneficiaries of this decoupling, eg low-cost alternative manufacturing locations to China, such as Bangladesh and Vietnam in Asia, Ethiopia in East Africa, Romania in East Europe, or Mexico on the US' doorstep. Much has also been written about potential losers, eg mega Tech companies from the US or China subjected to increasingly nationalistic regulation, or Tech hardware companies incurring duplicated capex to establish separate supply chains. The topic of which countries welcome China and where it might "double-down", eg Pakistan, has also been widely discussed in the context of the Belt and Road Initiative.
Less attention is paid, either because of complacency or because of the inability to predict with any precision, to two other questions:
Do sanctions expand to a point where they inhibit investment in the constituents of widely-followed benchmarks like the MSCI EM Equity and JP Morgan EM Bond indices, where China's weight is about 40% and 4%, respectively?
How soon will the flash points occur that define the limits of confrontation, in the manner of the 1962 Cuban Missile Crisis in the US-USSR cold war, (the list of candidates for where this might occur is long; eg Hong Kong, Taiwan, South China Sea, the Himalayas)?
Related reading
EU-China deal follows a year of friction, prepares for Biden, January 2021
China Nine-Dash Line, US, Taiwan and Asia: 9 charts to explain, January 2021
China manufacturing is irreplaceable but India and other Asians can win share, June 2020
US weaponises all Tech regulation in China friction, EM Tech in the cross hairs, August 2020
Human rights presents a dilemma for ESG investors and US foreign policy, February 2021
China ‘genocide’ and risks of investors’ culpability for human rights abuses (Domjan), March 2021
China's BRI: 2nd forum to stir an old debate, April 2019