US-China decoupling would cost America hundreds of billions of dollars

BEIJING – The US economy could lose more than $ 1 trillion in production and long-term global competitiveness if the White House seeks a sharp split from China, according to a report released on Wednesday by the U.S. Chamber of Commerce and by the Rhodium Group.

While the President of the United States, Joe Biden, seems determined to maintain his predecessor’s tough stance on China, the report’s authors drew estimates for the enormous costs of sweeping – rather than directing – policies to protect the national security of United States of Beijing’s growing economic and technological influence.

These projected losses include:

• In 2025, US $ 190 billion a year in US production, expanding tariffs by 25% for all trade with China. In the next decade, the full implementation of these tariffs would put the United States at $ 1 trillion below potential growth.
• Up to $ 500 billion in occasional GDP losses if the US sells half of its direct investment in China. American investors would also lose $ 25 billion a year in capital gains.
• From $ 15 billion to $ 30 billion a year in trade in exported services, if Chinese tourism and education spending drops to half of what it was before the coronavirus pandemic.

Research for the 92-page report began in 2019, before the coronavirus pandemic hit the global economy.

Tensions between the U.S. and China have increased over the past three years under former President Donald Trump. His government sought to use tariffs, sanctions and increased scrutiny of international financial flows to deal with longstanding complaints about the lack of protection for intellectual property in China, forced transfers of technology and the significant role of the state in commercial operations.

The costs of separating the two largest economies in the world go well beyond the immediate dollar values.

Comprehensive US policies toward China will also affect other countries, forcing them to reconsider their relations with the United States, the report said. He added that these changes will increase costs for American companies and reduce their ability to compete globally.

The report specifically looked at the impact of the White House’s comprehensive policy on the aviation, semiconductor, chemical and medical device industries. For example, losing the huge Chinese aircraft market could cost $ 875 billion by 2038, according to the authors’ analysis.

To meet national security goals, the report said the United States government should seek “close action”, such as restrictions on the export of specific technology licenses.

Completely cutting off American companies from the Chinese market is likely to have greater consequences for America’s global leadership in the long run, the report said.

“It is imperative that US chip companies maintain access to the Chinese market and be able to reinvest the proceeds of their sales in China into US-based chip production and R&D to maintain their global leadership position, allowing the US set the standards for the future. “

Ultimately, the successful policy of the United States and China will come at a cost and will require some painful adjustments, the report said.

“In future policy reengineering,” said the report, “the central role of market forces in determining winners and the finite capacity of governments to redistribute resources to facilitate the process, must be respected.”