Daniel H. Rosen, Lauren Gloudeman, and Badri Narayanan Gopalakrishnan
recent years both China and the US have moved beyond threats to start closing doors to one another in high technology. This broad trend of technology decoupling is advancing in many areas, from ongoing tariffs to new and strengthened investment restrictions. In 2016 Rhodium Group conducted a study called “Preventing Deglobalization: An Economic and Security Argument for Free Trade and Investment in ICT,” which estimated the costs to the Chinese economy of shutting down information and communications technology (ICT) trade with the world. We found that Beijing’s ICT “nativization” would deliver massive economic and productivity losses for China for years to come.
Now, in light of the Trump administration’s intensification of trade and investment barriers against China, we have turned the focus of our update to the 2016 study to the costs of US ICT deglobalization for the US economy. In a new report titled “Assessing the Cost of Tariffs on the US ICT Competitiveness: Modeling US China Tariffs,” published in partnership with the United States Chamber of Commerce, we offer a quantitative assessment of the impact of barriers to US-China ICT trade. As a basis for our assessments, we simulate tariff escalation scenarios modeled after the US Section 301 case because that action disproportionately targeted Chinese exports of ICT-related goods to the US. Even if some of those tariffs are lifted in a temporary cessation of trade tensions in coming weeks, US barriers to tech trade and investment with China are likely to remain in place if not intensify. For that reason, we re-engaged our earlier work in an effort to help policymakers and the business community understand the potential economic ramifications of technology decoupling from China.
Key Findings
US GDP would face $1 trillion in cumulative losses within ten years across all tariff escalation scenarios.
Bilateral tariff escalation erodes US ICT export competitiveness.
Tariffs undermine the critical role of US ICT services in facilitating all goods trade, and especially within globalized supply chains.
Decoupling ICT trade with China does not bring much ICT manufacturing back to the US.
China and the US—in that order—suffer the biggest hits to potential GDP growth, while the rest of the world benefits from diverted trade and investment.
A clearer understanding of the traditional economic welfare effects of proposed trade policy action is essential, even if—or perhaps especially if—larger questions of national security and competition are at issue.