If diplomats were on TikTok, “de-risk” would be trending. The word has suddenly become popular among officials trying to loosen China’s grip on global supply chains but not cut ties entirely, with joint communique from this weekend’s Group of 7 meeting which made it clear that the world’s largest democratic economies will now focus on “de-risking, not decoupling.”
The former is meant to sound more moderate, more surgical. It reflects a development in the discussion about how to deal with a growing, assertive China. But the word also has a vexing history in fiscal policy — and since the debate about risk reduction will continue, we might as well all get started.
How deterrence went viral
“De-risking” relations with China followed a speech by European Commission President Ursula von der Leyen on March 30, when she explained why she would travel to Beijing with French President Emmanuel Macron, and why Europe would not follow calls for decoupling which began under President Trump.
“I think it is neither profitable — nor in Europe’s interest — to disengage from China,” she said. “Our relationships aren’t black or white – and our response can’t be either. That’s why we need to focus on de-risking – not decoupling.”
German and French diplomats later pressed for the term in international contexts. Countries in Asia have also told US officials that decoupling would go too far in efforts to unravel decades of successful economic integration.
In an interview, David Koh, Singapore’s cybersecurity commissioner, explained that the goal should be security, with separation in some domains and cooperation in others.
“I think we get a tremendous amount of economic, social and security value when the 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 “distribution,” with Chinese markets and manufacturing on one side, and American-sanctioned supply chains on the other.
These arguments appear to have worked in favor of reduced risk. On April 27, US National Security Advisor Jake Sullivan used the word in a major policy speech.
“We are for de-risking, not decoupling,” he said. “Mitigating risk is fundamentally about having resilient, efficient supply chains and ensuring that we cannot be coerced by any other country.”
On May 17, S. Jaishankar, India’s Foreign Minister, added his voiceand said it was “important to reduce the risk to the global economy and still ensure that there is very responsible growth.”
What China thinks
For the Chinese government, unsurprisingly, “de-risking” is not much of an improvement.
“There is a sense that ‘de-risking’ may be ‘de-coupling’ in disguise,” the state-run Global Times wrote in a new leader. It 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 de-risking skeptics. “A significant change in policy?” Alex Lo asked, a columnist for The South China Morning Post. “I doubt it. It just sounds less belligerent; the underlying hostility remains.”
The Sordid Story of De-risking
Before it entered diplo-speak, the waiver had a long life as a response to US government sanctions against terrorism and money laundering, where it is associated with abuse.
According to Ministry of Finance“de-risking refers to financial institutions that terminate or limit business relationships indiscriminately with broad categories of customers rather than analyzing and managing the specific risks associated with those customers.”
In other words, risk-taking—in its common, pre-April usage—carries negative connotations of unnecessary exclusion.
Human rights groups, for example, have condemned how banks reduce risk by denying aid to aid agencies working in places like Syria, for fear of fines if an organization enters a gray area to provide aid to nations under sanctions.
A report from 2015 of the Council of Europe offered another critique: “De-risking can introduce additional risk and opacity into the global financial system, as termination of account relationships has the potential to force entities and individuals into less regulated or unregulated channels.”
This means that reducing risks leads to challenges in implementation: Doubtful and legitimate actors go into darker corners and innovate, making their actions more difficult to manage.
Take-out
De-risking’s story highlights the challenge facing the world’s democracies: how to disengage from China enough to reduce the threat of coercion, without encouraging paranoia or frivolous behavior that causes unnecessary harm.
De-risk requires tough decisions and solutions. Which semiconductors must be kept out of China’s hands? Do all medical devices need to be manufactured elsewhere than in China? What can TikTok do to firewall the risks of being owned by a Chinese company?
Removing risk can feel more diplomatic than decoupling. “Who doesn’t like to reduce risk?” said Bates Gill, director of the Asia Society’s Center for China Analysis. “It’s just rhetorically a much smarter way of thinking about what needs to be done.”
To make it work, the US and its allies will have to think harder and write more rules for some companies, while allowing others to stay in China, which navigates its own push to become self-sufficient.
In the world of sanctions, sifting risks from fair treatment and economic benefits is an imperfect evolving challenge – so it will be with China.
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