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We’re starting to see the implications of China’s lessening dependence on the rest of the world.

Chinese living standards plunged from about 50% of Western levels in the early 1800s to just 8% by the 1970s—a consequence of almost constant upheaval from war, colonialism, and revolution. By the 1980s, the Communist Party had concluded that stability was needed for development. In addition to ending the self-imposed chaos of the Mao era, this meant “keeping a low profile” in international affairs.

A peaceful external environment encouraged foreign investment in China’s productive capacity and ensured ample export markets for China’s new industries. Within the past few years, however, China has become markedly less dependent on the rest of the world. This may have altered its leaders’ strategic thinking.

Consider the recent allegations, reported by Bloomberg Businessweek, that the People’s Liberation Army had inserted specialized spying chips into motherboards bound for servers around the world. While the potential intelligence gains could have been enormous—Businessweek claims the tampered motherboards could have gotten inside the Central Intelligence Agency and onto U.S. Navy ships—the operation would have risked annihilating the commercial reputations of Chinese electronics manufacturers.

If the story is broadly correct, no respectable Western or Japanese company should be willing to tolerate any Chinese presence in its supply chain. Even though the cost of relocating would be incredibly expensive—American companies alone have spent more than $250 billion investing in China over the years—it would probably be worth the trouble to maintain customer confidence. That would leave many Chinese companies and workers in the lurch.

Assuming the allegations are legitimate, why might the Chinese government have been willing to endanger its enterprises?

One possibility is that decisions on espionage could have been made by people who weren’t focused on economic policy. Bureaucracies often pursue their specific priorities to the detriment of other agencies. There is no reason to think China is any different.

It is also possible, however, that Chinese officials judged the risks worth taking because they realized the economic environment had changed.

China is significantly less dependent on the rest of the world than it was even 10 years ago. According to China’s National Bureau of Statistics, manufacturing export revenues have been essentially flat since 2014. The growth impulse that had come from the expansion of trade is mostly gone. Its trade surplus remains large because the country’s demand for imports has also contracted.

Meanwhile, China’s economy has continued to grow, albeit at a slower pace than in the past. The result is that the importance of exports has collapsed. Goods exports have plunged from about 35% of China’s gross domestic product in 2006-07 to just 18% today.

Even that figure overstates the importance of exports to the Chinese economy, since a decent chunk of the value of Chinese exports still comes from imported components. Chinese manufacturers have been rapidly increasing their share of the value in Chinese exports, but not by nearly enough to offset the overall trend. Only around an eighth of what China actually produces ends up going abroad.

At the same time, China’s exports are relatively less likely to go to the U.S. and its allies. Exports to Latin America, the Middle East, Africa, and the rest of Asia have grown in importance. In 2005, three-quarters of China’s exports of its domestic production went to the U.S., Europe, Australia, Canada, Japan, Korea, Mexico, and New Zealand. By 2013, the share dropped below 60%.

While the U.S. remains China’s single biggest export market, its relative importance fell by more than seven percentage points over that period. The result is that the Chinese economy is now less reliant on selling things to America and its allies than at any point since at least 2000, even though the U.S. and its allies are more dependent than ever on Chinese production to satisfy their domestic needs.

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The shift in the economic relationship may have exacerbated shifts that were already occurring in Chinese rhetoric and policy. As former UBS chief economist George Magnus describes in his book Red Flags: Why Xi’s China Is in Jeopardy, the Communist Party reacted to the financial crisis—and to the democracies’ botched response—by becoming increasingly authoritarian and expanding state control over the economy. A “new ideological path” replaced the longstanding agenda of “reform and opening up” after President Xi Jinping took office at the end of 2012. Less focused on market-driven economic development than in the past, the Chinese government has also become increasingly bellicose in its dealings with its neighbors, getting into conflicts with, among others, Australia, India, Japan, South Korea, the Philippines, Singapore, and Vietnam.

Magnus also notes that concerns about China help explain an unusual feature of the U.S.-Mexico-Canada Agreement, which recently replaced Nafta. A provision in Chapter 32 states that any signatory that agrees to “a free trade agreement with a non-market country” can get kicked out of the North American pact. If this provision becomes standard in U.S. trade negotiations, it would force countries to choose between a deal with China and a deal with the U.S. While the policy risks exacerbating tensions, it may be justified if the Chinese government continues to become less constrained by economic interdependence.

Write to Matthew C. Klein at matthew.klein@barrons.com