US companies would lose hundreds of billions of US dollars if they slashed investment in China or if the nation 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’ 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 percent tariff on all two-way trade would trim the US’ GDP by US$190 billion annually by 2025, the group said in a joint study with Rhodium Group, a New York-based data and analytics firm.
The analysis highlights the costs of different policies as US President Joe Biden’s 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.
A “balanced and rational approach” to commercial relations with China is in the interests of the US government and the US business community, the chamber said.
At the same time, the group said that it is in favor of a “rules-based” economic order and against Chinese practices that are unfair to US companies.
The US and China fought a trade dispute under former US president Donald Trump that continues to see tariffs applied on about US$335 billion of Chinese goods annually, calculations by Chad Bown at the Peterson Institute for International Economics showed.
That is despite a phase 1 trade agreement reached last year, in which China promised to purchase more US products. Beijing missed its trade-deal targets for last year as the COVID-19 pandemic upended shipping and supply chains.
Under the pact, Beijing pledged to buy an extra US$200 billion of US agriculture, energy and manufactured products over the 2017 level in the two years through the end of this year.
The deal also did not fully address some of the biggest grievances of US companies, such as China’s theft of intellectual property, forced technology transfer and subsidies for domestic industries.
In addition to a reduction in exported goods, the study estimated that if Chinese spending by tourists and students was reduced by half from pre-pandemic levels, the US would lose US$15 billion to US$30 billion per year in service trade exports.
A decoupling would hurt spending on research and development in the US that supports China operations, although this impact is harder to quantify, the chamber said.
The chamber’s report also 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 US$38 billion in output losses and nearly 100,000 jobs in the chemicals industry, while 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, it said.
Lost market share in medical devices would result in US$23.6 billion in annual revenue, it added.
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