If diplomats were on TikTok, “harm reduction” would be all the rage. The word has suddenly become popular among officials trying to loosen China’s grip on global supply chains, but without completely cutting ties, with the joint press release from this weekend’s Group of 7 meeting, making it clear that the world’s largest democratic economies will now focus on “mitigating risk, not decoupling”.
The first is supposed to have a more subdued, more surgical sound. This reflects an evolution in the discussion of how to deal with a rising and assertive China. But the word also has a frustrating history in financial policy – and since the debate over risk reduction will continue, we all might as well get up to speed.
How harm reduction went viral
“Risk-free” relations with China spread after a speech by European Commission President Ursula von der Leyen on March 30 when she explained why she would be traveling to Beijing with French President Emmanuel Macron, and why Europe would not follow calls for decoupling that started under President Trump.
“I don’t think it’s viable – or in Europe’s interest – to decouple from China,” she said. “Our relationships are neither black nor white – and neither can our response. That’s why we need to focus on risk reduction – not decoupling.
Later German and French diplomats in a hurry for the term in international contexts. Asian countries have also told US officials that decoupling would go too far in trying to unravel decades of successful economic integration.
In an interview, David Koh, Singapore’s cybersecurity commissioner, explained that the focus should be on security, with separation in some areas and cooperation in others.
“I think we derive enormous economic, social and safety value when systems are interoperable,” he said. “I want my plane to take off from Singapore and land safely in Beijing.”
What worries globalized economies, he added, is the “bifurcation,” with Chinese markets and manufacturing on one side, and US-sanctioned supply chains on the other. .
These arguments seem to have worked in favor of risk reduction. On April 27, US National Security Advisor Jake Sullivan used the word in a major political speech.
“We are for risk reduction, not decoupling,” he said. “Reducing risk fundamentally means having resilient and efficient supply chains and ensuring that we cannot be subject to coercion from another country.”
On May 17, S. Jaishankar, India’s Foreign Minister, added his voicesaying it was “important to reduce risks to the global economy while ensuring very responsible growth”.
What China Thinks
For the Chinese government, unsurprisingly, “risk reduction” is not really an improvement.
“There is a sense that ‘de-risking’ could be ‘decoupling’ in disguise,” wrote the state-run Global Times in a recent editorial. He argued that Washington’s approach had not deviated from “its unhealthy obsession with maintaining its dominant position in the world”.
Some commentators in the region are also skeptical of the risks. “A substantial change in policy? Asked Alex Lo, columnist for the South China Morning Post. “I doubt it. It just seems less belligerent; the underlying hostility remains.
The sordid history of De-risking
Before getting into diplo parlance, harm reduction has had a long life in the response to US government sanctions against terrorism and money laundering, where it is associated with overreach.
According to Treasury Department“risk reduction refers to financial institutions terminating or restricting business relationships indiscriminately with broad categories of customers rather than analyzing and managing the specific risks associated with those customers”.
In other words, harm reduction – in its common usage, before April – has negative connotations of unnecessary exclusion.
Human rights groups, for example, have sentenced how banks are reducing risk by denying service to aid agencies working in places like Syria, fearing fines if an organization strays into a gray area of providing aid to nations under sanction.
A 2015 report of the Council of Europe made an additional criticism: “Risk reduction can introduce more risk and opacity into the global financial system, as the termination of account relationships has the potential to force entities and individuals to take less regulated or unregulated channels”.
This means that reducing risk brings enforcement challenges: dubious and legitimate actors move into darker corners and innovate, making their actions more difficult to manage.
To take with
The story of harm reduction highlights the challenge facing the world’s democracies: how to disconnect enough from China to reduce the threat of coercion, without encouraging paranoia or thuggish behavior that causes unnecessary harm.
Risk reduction requires difficult and improvised decisions and solutions. Which semiconductors should be kept out of China’s reach? Should all medical devices be produced outside of China? What could TikTok do to firewall the risks of being owned by a Chinese company?
Risk reduction may seem more diplomatic than decoupling. “Who doesn’t like to reduce risk?” said Bates Gill, director of the Asia Society’s China Analysis Center. “It’s just rhetorically a much smarter way to think about what needs to be done.”
For this to work, the United States and its allies will have to think harder and write regulations for some companies, while allowing others to stay in China, which is navigating its own push to become independent.
In the world of sanctions, eliminating the risk of fair treatment and economic benefits is an imperfect and evolving challenge – it will be the same with China.