Decoupling From China to Significantly Hurt US Businesses

The U.S. Chamber of Commerce's China Center and the Rhodium Group on Wednesday published a study showing that U.S. businesses would have billion-dollar losses if the United States and China were to fully decouple.

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If 25-percent tariffs were expanded to cover all two-way trade, the United States would forgo US$190 billion in its gross domestic product (GDP) annually by 2025. If decoupling leads to the sale of half of the U.S. foreign direct investment (FDI) stock in China, U.S. investors will lose US$25 billion per year in capital gains, and models point to one-time GDP losses of up to US$500 billion.

The "Understanding U.S.-China Decoupling: Macro Trends and Industry Impacts" Report identified the potential costs of a U.S.-China decoupling from two perspectives: the aggregate costs for the U.S. economy across trade, investment, people, and ideas, and the industry-level costs in civil aviation, semiconductors, chemicals, and medical devices.

"If we were to try to cut off everything or the preponderance of our economic engagement with China would be so expensive that it would make everyone, even the most hawkish Americans and national security professionals, very uncomfortable," the Rhodium Group’s founding partner Daniel Rosen said.

On industry-level costs, full decoupling would lead to tremendous U.S. output losses for strategic U.S. industries, weakening their ability to sustain jobs, research & development (R&D), and global technology leadership.

Among the industrial losses it listed, the U.S. aircraft and commercial aviation services would suffer output losses ranging from US$38 billion to US$51 billion, plus job losses between 167,000 and 225,000.

For the U.S. semiconductor industry, a loss of access to Chinese customers would cause US$54 billion to US$124 billion in lost U.S. output, risking more than 100,000 U.S. jobs, and US$12 billion in R&D spending.

"We did this study largely to suggest that the degree of interconnectedness between the United States and China creates a very complex relationship, such that efforts from the United States or China to decouple, to disengage actually, have perhaps unintended consequences," said Charles Freeman, senior vice president for Asia at the U.S. Chamber of Commerce.