China decoupling would cost US economy billions, chamber says

American companies would lose hundreds of billions of dollars if they slashed investment in China or the nations increased tariffs, the US Chamber of Commerce said in a report highlighting the cost of a full decoupling of the world’s largest economies.

The US Chamber Of Commerce logo

American gross domestic product (GDP) would see a one-time loss of as much as US$500 billion should US companies reduce foreign direct investment in China by half, the Washington-based business lobbying group said in a report on Wednesday. Applying a 25 per cent tariff on all two-way trade would trim US GDP by $190 billion annually by 2025, the group said in a joint study with Rhodium Group, a New York data and analytics firm.

Comparing Administrations and approaches

The analysis highlights the costs of different policies as the Biden Administration weighs the best strategy for facing challenges posed by China. The chamber said that the US should work with allies to confront China on its State-led economic model and national security concerns rather than acting unilaterally, and without undermining US productivity and innovation.

Former Vice President Joe Biden, 2020 Democratic presidential nominee during an primary night rally in the Baldwin Hills neighborhood of Los Angeles, California, US, on Tuesday, March 3, 2020.

A “balanced and rational approach” to commercial relations with China is in the interests of both the US and the American business community, the chamber said. At the same time, the group said that it’s in favour of a “rules-based” economic order and against Chinese practices that are unfair to American companies.

The US and China fought a trade war under President Donald Trump that continues to see tariffs applied on about US$335 billion of Chinese goods annually, according to the calculations by Chad Bown at the Peterson Institute for International Economics. That’s despite a phase-one agreement reached in 2020, where China promised to purchase more American products. Beijing missed last year’s target to buy an extra US$200 billion in US agriculture, energy and manufactured products over the 2017 level as the global pandemic upended shipping and supply chains.

Former US President Donald Trump (File photo)

The deal also didn’t fully address some of the biggest grievances of American companies, such as China’s theft of intellectual property, forced technology transfer and subsidies for domestic industries.

Affected industries

The chamber’s report also studied the potential decoupling impact on four industries. It found that losing access to China’s semiconductor market would cause US$54 billion to US$124 billion in lost output and put 100,000 US jobs at risk. The imposition of tariffs could result in as much as $38 billion in output losses and nearly 100,000 jobs in the chemicals industry.

Losing access to China’s market for US aircraft and commercial aviation services could cost US$51 billion annually in output, or US$875 billion cumulatively by 2038. Lost market share in medical devices would result in $23.6 billion in annual revenue, the chamber said.