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The Risks of “De-Risking”

With pretty much everyone agreeing that decoupling between the West and China would be extraordinarily costly, the new buzzword in Western capitals has shifted to “de-risking.” But unless policymakers clarify what that term does and does not mean, it could do more harm than good.

STOCKHOLM – We have just witnessed the birth of a new buzzword. Suddenly, policymakers in the United States and across Europe want to “de-risk” the relationship with China.

The term owes its new popularity to the equally sudden turn away from “decoupling,” which made the rounds for a while, until it turned out that almost no one favors a definitive break between China and the West. It is neither desirable nor even feasible to sever all ties with the world’s second-largest economy, so everyone has settled on a much vaguer concept.

While decoupling is quite clear, de-risking is open to many interpretations. Risks are inherent in all economic activity, and in market economies, the willingness to take risks drives innovation, growth, and greater prosperity. If an economy without risk were possible, it would offer no rewards, and thus would tend toward sclerosis.

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