Chinese study models consequences of a complete US-China trade rupture
Chinese researchers have modeled a scenario of a complete economic rupture between the United States and China. According to the model’s results, such a step would cause significant welfare losses for both of the world’s largest economies, but could temporarily benefit certain other countries. The study was reported by the South China Morning Post.
Model conditions
The work was prepared by scholars from the Guangzhou Institute of Geosciences and the Beijing Normal University Greater Bay Area International Business School. It was published in the peer-reviewed journal South China Journal of Economics. The authors used a quantitative trade model to assess the macroeconomic consequences of different decoupling scenarios.
Full decoupling in the model meant the United States and China imposing reciprocal tariffs of 10,000%, which would effectively halt bilateral trade. According to the researchers’ estimates, Cambodia, Vietnam, Bangladesh, and Mexico could see the largest temporary gains under this scenario. The authors linked this to the restructuring of global supply chains: these countries could partially take over manufacturing and trade operations previously supported by US-China cooperation.
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Vulnerability of new manufacturing hubs
In the authors’ view, Vietnam could attract part of the manufacturing processes or orders previously placed in China. Mexico could benefit from its geographical proximity to the United States and participation in the United States-Mexico-Canada Agreement, which encourages the relocation of production to North America.
At the same time, these economies would be among the most vulnerable if their own ties with China were further severed. Vietnam is deeply integrated into the China-oriented East Asian production network, and its electronics and textile exports depend heavily on Chinese intermediate goods. According to the model, ending these supplies would cause serious damage to Vietnam’s manufacturing sector.
The researchers project the greatest welfare losses in a scenario of decoupling between China and the European Union because of the parties’ deep interdependence in high-tech manufacturing, capital goods, and technology products. At the same time, according to the authors’ calculations, China could partially mitigate the consequences of a rupture with the United States by replacing some US imports with supplies from other countries or domestic production.
