Bloomberg
Published Sep 03, 2020 12:01AM ET
Updated Sep 03, 2020 12:36AM ET
Decoupling With U.S. Would Cut China’s Growth to 3.5%, Says Study
(Bloomberg) -- The worsening conflict between China and the U.S. has damaged bilateral trade, but a complete decoupling between the two largest global economies would be even more damaging to China’s long-term growth prospects, according to Bloomberg Economics.
The country’s potential growth rate could fall to about 3.5% in 2030 if it decouples with the U.S., Bloomberg Economists Tom Orlik and Bjorn van Roye wrote in a note. That’s down from the current forecast of 4.5%, which assumes relations remain broadly unchanged.
Read the research: Xi’s Nightmare - U.S. Rift May Crush GDP to 1.6%
Such a decoupling -- defined as ending the flow of trade and technology that boosts growth potential -- would have a much larger impact on China than on the U.S. as China gains more from cross-border exchanges of ideas and innovations. The U.S. potential growth rate would be 1.4% in 2030 instead of the current forecast of 1.6%, the research estimates.
In this scenario, China’s productivity growth will slow due to the stop in technology transfer, and capital spending could also be weaker. However, the results won’t be catastrophic as the country has substantially narrowed its technology gap with advanced economies over the last 20 years, the study published Thursday argued.
“If China moved to increase domestic funding for research and development, and expanded its ties with other advanced economies, it could hope to offset a significant amount of the drag,” the economists wrote.
China already looks to be preparing for less connection with the global economy. President Xi Jinping’s new strategy positions the domestic economy as the main driver of growth, seeking to insulate the nation from a slowing global economy and rising hostility. While the details still need to be fleshed out, it’s clear China wants more self-reliance in advanced manufacturing and technology innovation.
China would face even more disastrous consequences if the U.S. can coordinate its key allies, such as Japan, South Korea, Germany and France, to also decouple. In that case, China’s growth potential could fall to 1.6% in 2030, and it’d be harder for Beijing to offset with countervailing policies, according to the forecasts.
©2020 Bloomberg L.P.
Written By: Bloomberg
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.