Chamber of Commerce Estimates Cost of Decoupling From China on US Economy
The semiconductor, chemicals, medical devices and aviation industries could be especially hurt by decoupling, according to a new U.S. Chamber of Commerce report attempting to quantify the costs of stopping or slowing sales to China, and in the case of chemicals, high tariffs on Chinese inputs used by U.S. chemical plants. Some of the actions modeled in the report have already happened, such as 25% tariffs on chemicals from China, and China's retaliatory tariffs on chemical exports. But while semiconductor exports to ZTE, Huawei and Fujian Jinhua have been restricted, there has not been a complete ban on the export of chips to China, which is what the report modeled.
Sign up for a free preview to unlock the rest of this article
Export Compliance Daily combines U.S. export control news, foreign border import regulation and policy developments into a single daily information service that reliably informs its trade professional readers about important current issues affecting their operations.
“For the U.S. semiconductor industry, forgoing the China market would mean lower economies of scale and R&D spending -- and a less central role in the full web of global technology supply chains,” the report authors wrote, and it would further motivate China to seek self-sufficiency in microchips. “Lost access to Chinese customers would cause the U.S. industry $54 billion to $124 billion in lost output, risking more than 100,000 jobs, $12 billion in R&D spending, and $13 billion in capital spending,” they said.
The report's authors defended the choice of what to model by saying that when they started working on this paper in 2019, it was seen as highly unlikely that tariffs would be imposed on about three-quarters of China's exports to the U.S. The report said: “As recently as 2018, large-scale U.S.-China decoupling seemed unlikely given the interconnected and interdependent nature of the two-way relationship. Since then, disengagement expectations have broadened from trade and high-tech FDI to include most all areas, ranging from the flow of goods and portfolio investment to restrictions on journalists and students. In each of these channels, the state of play has moved from concept to implementation.”
“Our choices are not going to be cheap even if we’re selective about our decisions of reengineering our economic relationship with China,” the Rhodium Group's Dan Rosen said during a Feb. 17 webinar introducing the report.
The report said the cost of tariffs on imported chemicals from China and retaliatory tariffs on U.S.-made chemicals have a potential cost of “$10.2 billion in U.S. payroll and output reductions and 26,000 lost jobs to more than $38 billion in output losses and nearly 100,000 lost jobs.”
The report argues that there could be retaliation in China against U.S. exports of medical devices if the U.S. pushes for fewer inputs in the medical device supply chain from China. However, the GE Healthcare representative on a panel discussing the report said that his operations in Beijing have had no negative fallout from the trade war this far.
The Semiconductor Industry Association helped underwrite the report, and its CEO John Neuffer said during the webinar, “It’s critically important to …create some context for all the loose talk about decoupling that’s seeped into the policy discussions the last few years.”