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

A recent study has suggested that a total economic separation between the United States and China could actually benefit several other countries in the long run. Chinese researchers from Guangzhou and Beijing utilized a quantitative trade model to simulate scenarios where the two superpowers severed all trade relations. Contrary to expectations, the researchers found that countries such as Cambodia, Vietnam, Bangladesh and Mexico would experience an increase in overall economic well-being.

The authors attributed these beneficial changes to the fact that these countries had already begun to take over trade and production activities that were previously carried out between the US and China. However, the researchers also warned that any potential benefits would be short-lived. If these economies subsequently cut their own economic ties with China, their initial gains would quickly turn into losses.

The study, published in the South China Journal of Economics, focused on measuring the macroeconomic fallout from aggressive tariff policies. In their simulation, complete decoupling was defined as a scenario where the US and China imposed reciprocal tariffs of 10,000 percent, effectively cutting off bilateral trade. The model revealed that such a rupture between the two economic giants would cause significant welfare losses for both countries.

Interestingly, the study found that some nations such as Cambodia, Vietnam, Bangladesh and Mexico were projected to benefit most from the decoupling. Vietnam, in particular, was anticipated to gain significantly due to its relatively low labor costs and expanding manufacturing base. The country had managed to attract certain production processes or orders that were previously based in China.

Similarly, Mexico's gain was linked to its geographical proximity to the United States and its integration into the US-Mexico-Canada Agreement (USMCA), which would enable the country to efficiently absorb industrial activities tied to near-shoring or reshoring of North American supply chains.

However, the researchers cautioned that these nations were among the economies most exposed to potential losses if they later decoupled from China. Vietnam's export industries, particularly electronics and textiles, heavily relied on intermediate goods imported from China. The study concluded that decoupling from Beijing would cause devastating damage to Vietnam's manufacturing sector by destroying supply lines.