The U.S. and China are heading for an inevitable decoupling.
A study of U.S.-China economic relations by the U.S. Chamber of Commerce and New York-based Rhodium Group shows that political trust between the United States and China has hit rock bottom and is heading toward an inevitable decoupling.
On Wednesday (Feb. 17), the U.S. Chamber of Commerce’s China Center and New York-based research firm Rhodium Group released a joint report saying that political trust between Washington and Beijing has hit rock bottom, competition between the U.S. and China is set to intensify and decoupling will continue.
According to the report, “It is imperative to determine the true consequences and costs of decoupling, as initial steps have been taken toward such a move.”
The report said, “The United States is debating whether and how …… will continue to go forward. The prospect of U.S.-China decoupling has never been more real. But there is a strong case for limiting decoupling to areas of trade, investment, movement of people, and technology that seriously undermine U.S. national security, rather than acting for no reason without regard to economic welfare.”
Citing declines in trade, investment flows, tourism and student exchanges, the report said there has been “a degree of decoupling” between the two countries and that many U.S. businesses are making changes to prepare.
Foreign companies are also asking whether they would benefit from a separation or whether their own governments would follow suit, the report said.
The report found that because the U.S. and Chinese economies are intertwined in so many ways, it makes the cost of full decoupling “disturbingly high.
The researchers estimate that a 25 percent tariff on all trade between the two countries would cost the U.S. economy about $190 billion a year – and if U.S. companies halved their foreign direct investment in China, the U.S. economy would suffer a one-Time loss of up to $500 billion.
A complete ban on Chinese tourists and students traveling to the United States would add an additional $30 billion in annual losses.
Nonetheless, the report argues that the Chinese Communist government has decoupled from free-market economic norms in its efforts to strengthen state control, discourage private enterprise and pursue high-tech self-reliance.
Daniel Rosen, head of China research at RTC Consulting and lead author of the report, said U.S.-China engagement has always hinged on shared free-economic goals, but that “a less permissive stance is necessary” as the Communist government reverts to larger national programs.
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