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Dannie Peng

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.




In their model, “complete decoupling” was defined as an extreme scenario in which the two sides imposed reciprocal tariffs of 10,000 per cent – effectively cutting off bilateral trade.
The findings showed that a China-US rupture would cause significant economic welfare losses for both superpowers, while potentially bringing temporary gains to other economies.
Cambodia, Vietnam, Bangladesh and Mexico were among those projected to benefit most.
Vietnam – buoyed by relatively low labour costs and an expanding manufacturing base – was projected to benefit significantly. This, the authors noted, was probably because the country managed to “attract part of the production processes or orders previously located in China”.
Mexico’s gain was driven by its geographical proximity to the United States and integration into the US-Mexico-Canada Agreement (USMCA), a trilateral free-trade pact, which would enable the country to efficiently absorb industrial activities tied to the near-shoring or reshoring of North American supply chains.
However, the study also found these nations to be among the economies most exposed if they later decoupled from China.
In the case of Vietnam, the authors noted that the country was deeply integrated into a China-centred East Asian production network, its key export industries – particularly electronics and textiles – relying heavily on intermediate goods imported from China.

The study found that decoupling from Beijing would rupture these supply lines and bring “devastating damage” to the country’s manufacturing sector.
The researchers extended their simulations to assess the impact of China completely decoupling from its other major trading partners, including the European Union, Japan, South Korea and members of the Association of Southeast Asian Nations.
“The welfare losses arising from a China-EU decoupling are the largest,” the paper noted, citing the “extensive and deep two-way dependence” between the two sides, particularly in high-end manufacturing, capital goods and technology-intensive products.
By comparison, the model suggested that China could partly cushion the economic shock of a US-China decoupling by replacing some US imports – including agricultural commodities, energy products and standardised industrial goods – with supplies from other countries or domestic production.
China is the EU’s second-largest trading partner after the US. However, trade friction, geopolitical rivalry and economic competition are increasingly dominating the narrative between Brussels and Beijing.
A European Commission delegation has recently been locked in talks with Chinese officials in Beijing, as both sides seek a diplomatic off-ramp from a potential trade war before an October deadline set by Brussels.


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The study suggests a complete severing of trade ties would hurt both superpowers while bringing temporary gains elsewhere


The study suggests a complete severing of trade ties would hurt both superpowers while bringing temporary gains elsewhere.


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

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The study suggests a complete severing of trade ties would hurt both superpowers while bringing temporary gains elsewhere

The study suggests a complete severing of trade ties would hurt both superpowers while bringing temporary gains elsewhere