The disconnect between the US and China would cost America hundreds of billions of dollars

BEIJING – The US economy could lose more than $ 1 trillion in production and global competitiveness in the long run if the White House pursues a sharp divorce with China, according to a report released Wednesday by the US Chamber of Commerce and Rhodium Group.

While US President Joe Biden appears poised to maintain his predecessor’s harsh stance on China, the report’s authors estimated the enormous cost of sweeping – rather than targeted – policies to protect US national security from Beijing’s growing economic and technological influence.

These expected losses include:

• By 2025, $ 190 billion a year in US production by extending 25% tariffs to all trade with China. Over the next decade, the full implementation of such rates would leave the US $ 1 trillion short of potential growth.
• Up to $ 500 billion in one-time GDP losses if the US sells half of its direct investment in China. US investors would also lose $ 25 billion a year in capital gains.
• $ 15 billion to $ 30 billion a year in exported services trade when China’s tourism and education spending is half of what it was before the coronavirus pandemic.

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

Tensions between the US and China have escalated over the past three years under former President Donald Trump. His government sought to use tariffs, sanctions and greater control of cross-border financial flows to address long-standing complaints about China’s lack of intellectual property protection, forced technology transfers, and an important role of the state in corporate activities.

The costs of the world’s two largest economies separate well beyond the direct dollar figures.

A sweeping US policy targeting China will also affect other countries, forcing them to reconsider their relationship with the US, the report said. It added that these measures will increase costs for US companies and reduce their ability to compete globally.

The report specifically looked at the impact of broad White House policies in the aerospace, semiconductor, chemical, and medical device industries. For example, according to the authors’ analysis, losing China’s massive aircraft market could cost $ 875 billion by 2038.

To address national security goals, the report said the US government should pursue “closely tailored actions”, such as restrictions on exports of specific technology licenses.

Cutting U.S. companies completely from the Chinese market is likely to have greater long-term implications for America’s global leadership, the report said.

“It is critical that US chip firms maintain access to the Chinese market and be able to reinvest revenues from their Chinese sales in US-based chip manufacturing and R&D to maintain their global leadership position, setting the US standards. for the future. “

Ultimately, a successful policy between the US and China will come at a cost and require some painful adjustments, the report said.

“The forthcoming policy restructuring,” says the report, “must respect the central role of market forces in determining winners and the limited ability of governments to redistribute resources to facilitate the process.”