明日指標

Q1 2023

US-China Decoupling Index (UCD)

News Release

March, 01, 2023

1. Introduction
The U.S.-China Decoupling Index is an index made by New Options Research and Consulting with the purpose to monitor the decoupling of trade between the United States and China in the fields of semiconductors, semiconductor equipment, and communication equipment. It will shed light on technological decoupling that accompanies trade decoupling. Using first quarter of 2018 as the baseline, this index measures the current degree of trade decoupling between the United States and China in the above three areas on a quarterly basis.

Since Trump took office, the United States has implemented a number of strategies to decouple from the Chinese economy, especially in the three major areas of semiconductors, semiconductor equipment, and communication equipment, many of which are promoted by the Biden administration. Measuring the degree of decoupling between the two countries in the three major areas can test the effect of U.S. policy and the degree of restructuring in the relative supply chains, and also can be used as a reference for manufacturers to grasp future development and prepare possible responses in advance.

The calculation of this indicator is based on the proportion of the United States’ imports from or exports to China in the overall (to all countries) imports or exports of the above three areas, so as to measure the changes in the degree of trade linkage between the two countries. As for the choice of import or export data, it depends on the key restriction measures by the US decoupling policy. In terms of semiconductors and semiconductor equipment, the United States mainly restricts the export of products to China. In terms of communication equipment, it mainly controls products imported from China. Although the US government also restricts the export of 5G chips, this belongs to the semiconductor field. Therefore, in the former two sectors, the export data is used, and in the latter sector, it is import data selected to calculate index.

This index sets the number of the first quarter of 2018 as 100, and compares it with the following quarters to convert them into indices of the above three fields, and then assigns weights to the three fields’ indices according to their export or import value to compute the overall index.

2. Index for the fourth quarter of 2022

Figure above shows the three major sector indices and the overall index in the fourth quarter of 2022, as well as historical data since 2018. A smaller index number indicates greater decoupling, and zero indicates complete decoupling. In the fourth quarter of 2022, among the four indices, communication equipment has the highest degree of decoupling, and it is almost completely decoupled from China. Semiconductors are the least decoupled. Compared with the first quarter of 2018, instead of decoupling, the semiconductor sector between the two countries has a deeper connection. In terms of the overall index, due to the higher weight assigned to semiconductors, it makes the overall index less decoupled compared with the first quarter of 2018. In addition, semiconductor equipment showed a slight decoupling compared to 2018.

Although the current degree of semiconductor decoupling is low compared with the first quarter of 2018, it can be seen that the two countries have clearly moved towards decoupling if compared with the second quarter of 2021. The semiconductor decoupling index has dropped from 178 in the second quarter of 2021 to 112 in the fourth quarter of 2022, a rate as high as 37%. Similarly, semiconductor equipment has recently experienced accelerated decoupling. The decoupling of communication equipment occurred earlier. Since the third quarter of 2018, there has been an obvious decoupling in this sector. In addition, it is worth mentioning that almost all indices have risen first and then fallen. This is mainly because Chinese manufacturers have accelerated imports from or exports to the United States during the gap between policy announcement and actual implementation or during the initial exemption period.