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

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The flags of the United States and China are displayed on the American International Chamber of Commerce (AICC) booth during the China International Services Trade Fair in Beijing, China, May 28, 2019.

Jason Lee | Reuters

BEIJING The US economy could lose more than $ 1 trillion in production and global long-term competitiveness if the White House pursues a clean separation from China, according to a report released Wednesday by the US Chamber of Commerce and the Rhodium Group.

While US President Joe Biden appears poised to keep his predecessor’s firm stance on China, the report’s authors have presented estimates of the huge costs of sweeping rather than targeted policies to shield US national security from growing economic and technological clout. from Beijing.

These projected losses include:

By 2025, $ 190 billion per year in US production by expanding tariffs by 25% to all trade with China. Over the next decade, full implementation of these tariffs would result in a drop of $ 1 trillion from potential growth in the United States, and up to $ 500 billion in one-time losses of GDP if states -United were selling half of their direct investment in China. U.S. investors would also lose $ 25 billion per year in capital gains. $ 15 to $ 30 billion per year in trade in exported services if Chinese tourism and education spending fell to half of what it was before. the coronavirus pandemic.

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

Tensions between the United States and China have escalated over the past three years under former President Donald Trump. His administration has sought to use tariffs, sanctions, and further scrutiny of cross-border financial flows to address long-standing complaints about China’s lack of intellectual property protection, forced technology transfers, and the important role of the state in business operations.

Losing global competitiveness

The costs of separating the world’s two largest economies go far beyond the immediate dollar numbers.

Radical US policies directed against China will also affect other countries, forcing them to reconsider their relations with the United States, according to the report. He added that these measures would increase costs for US businesses and reduce their ability to compete globally.

The report looked specifically at the impact of a sweeping White House policy in the aviation, semiconductor, chemicals, and medical device sectors. For example, losing China’s massive aircraft market could cost $ 875 billion by 2038, according to the authors’ analysis.

To achieve national security goals, the report says the US government should pursue “narrowly tailored actions” such as restrictions on the export of specific technology licenses.

Cutting US companies off the Chinese market altogether will likely have greater consequences for US global leadership in the long run, according to the report.

“It is essential that US chip companies retain access to the Chinese market and be able to reinvest the revenues from their sales in China into chip production and R&D in the United States in order to maintain their global leadership position. , allowing the United States to set the standards for the future. . “

Ultimately, a successful U.S.-China policy will have its costs and will require painful adjustments, according to the report.

“In the upcoming policy overhaul,” the report says, “the central role of market forces in determining winners and the limited ability of governments to redistribute resources to facilitate the process must be respected.”

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