Full decoupling from China could wipe out hundreds of billions from economy – US Chamber of Commerce

American firms and the economy as a whole could lose hundreds of billions of dollars if investment in China is halved or the two countries expand tariffs, the US Chamber of Commerce says in its latest study.

If American investors slash foreign direct investment (FDI) stock in China by half, their annual capital gains could drop as much as $25 billion, the business lobbying group said in research released on Wednesday. At the same time, the reduced investment will benefit US competitors, while America’s GDP would see a one-time loss of $500 billion, according to a report assessing the potential cost of the decoupling of the world’s two largest economies.

“Pulling two huge economies apart will be expensive,” the Chamber of Commerce said, adding that the two nations are still deeply intertwined. However, the study noted that “full, comprehensive decoupling is no longer unthinkable.”

The US-China trade deal has not eliminated all the tariffs that were imposed in the midst of the trade war between the two nations. If relations further deteriorate, and 25-percent tariffs are applied to all two-way trade, it could lead to $190 billion in annual losses for the US economy by 2025, the chamber said.

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The study also estimated that a full decoupling would have an impact on the flow of people, hurting revenue from tourism and education. According to its estimates, if Chinese tourism and education spending drop by half from pre-coronavirus pandemic levels, the US could lose from $15 billion to $30 billion per year in services trade exports.

The report also focused on the potential consequences of decoupling in four industries important to US national interests. The findings show that losing access to the Chinese market by the aviation industry would lead to annual output losses of $38 billion to $51 billion, or $875 billion cumulatively by 2038.

Additionally, losing a share in China’s semiconductor market would result in $54 billion to $124 billion in lost output and put 100,000 US jobs at risk. For the chemicals industry, the imposition of tariffs alone could lead to up to $38 billion in output losses and nearly 100,000 lost jobs. Lost market share in medical devices would result in $23.6 billion in annual revenue, while lost revenue over a decade could exceed $479 billion, the group said.

“Even based on our rough assessment, we can see that the costs of anything approaching ‘full’ decoupling are uncomfortably high,” the Chamber of Commerce concluded. While the group added that alternative ways to deal with China “would complement any decoupling scenario,” it said that if Washington still wants to confront China over its practices, it should unite with “like-minded partners” to minimize the costs to the economy.

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