Decoupling with the United States would reduce China’s growth to 3.5%, Bloomberg study finds

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© Bloomberg. An employee wearing a face shield works alone in a conference room at the Shanghai Huitian New Material Co. offices during a media tour in Shanghai, China on Wednesday, April 1, 2020. Chinese manufacturing activity rebounded strongly in March, signaling that the world’s second-largest economy is restarting as it faces a growing threat of declining external demand. Photographer: Qilai Shen / Bloomberg

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(Bloomberg) – The deepening conflict between China and the United States has damaged bilateral trade, but a complete decoupling between the world‘s two largest economies would be even more detrimental to China’s long-term growth prospects, according to Bloomberg Economics.

The country’s potential growth rate could drop to around 3.5% in 2030 if it decouples from the United States, Bloomberg economists Tom Orlik and Bjorn van Roye wrote in a note. This is a decrease from the current forecast of 4.5%, which assumes the relationship remains broadly unchanged.

Read Research: Xi’s Nightmare – US Rift Could Reduce GDP To 1.6%

Such decoupling – defined as the end of trade and technology flows that drive growth potential – would have a much larger impact on China than on the United States, as China benefits more from the cross-border exchange of ideas and ideas. innovations. The potential growth rate in the United States would be 1.4% in 2030 instead of the current forecast of 1.6%, according to research estimates.

In this scenario, China’s productivity growth will slow due to the cessation of technology transfer, and capital spending may also be lower. However, the results will not be catastrophic as the country has significantly reduced its technology gap with advanced economies over the past 20 years, according to the study released Thursday.

“If China moved to increase domestic funding for research and development, and expand its ties with other advanced economies, it might hope to offset a significant portion of the drag,” the economists wrote.

China already appears to be bracing for less connection with the global economy. President Xi Jinping’s new strategy positions the national economy as the main engine of growth, seeking to insulate the country from a slowing global economy and growing hostility. Although the details are yet to be fleshed out, it is clear that China wants more autonomy in advanced manufacturing and technological innovation.

China would face even more dire consequences if the United States could coordinate its main allies, such as Japan, South Korea, Germany and France, to decouple as well. In this case, China’s growth potential could fall to 1.6% in 2030, and it would be more difficult for Beijing to compensate with compensatory policies, according to forecasts.

© 2020 Bloomberg L.P.

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