US-China decoupling could benefit other countries, China trade war game suggests

Chinese researchers have modelled a war game scenario suggesting that a complete economic decoupling between the US and China could, unexpectedly, yield dividends for most other nations.

Using a quantitative trade model – a data-based economic framework that estimates how changes in trade affect economies – two researchers based in southern China’s Guangdong province found that if the world’s two largest economies were to sever trade relations entirely, a number of other countries, including nations in Southeast Asia, would actually see an increase in overall economic welfare.

“These favourable changes are attributable to the fact that, in the process of global supply chain restructuring, these countries have partially taken over trade and production activities previously carried out through US-China cooperation,” the authors wrote.

However, the simulations carried an important caveat: any spillover benefits would be fragile. If those economies were subsequently to cut their own economic ties with China, their initial welfare gains would quickly turn into losses.

The study, co-authored by researchers from the Guangzhou Geological Survey Institute and the Bay Area International Business School at Beijing Normal University, was published in the peer-reviewed South China Journal of Economics.

Seeking to quantify the macroeconomic fallout from aggressive tariff policies, the researchers simulated the shocks to China’s economy under various decoupling scenarios.