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How does GVC reconstruction affect economic growth and employment? Analysis of USA–China decoupling

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  • Jie Wu
  • Jacob Wood
  • Xianhai Huang

Abstract

The state of USA–China relations has become increasingly strained. The term ‘decoupling’ has been frequently used within the narrative of USA–China relations to describe the possible outcome of the relationship. A ‘decoupling’ of the USA and Chinese economies would trigger the restructuring of existing Global Value Chains (GVCs). Given this possibility, we use the 2014 World Input–Output Database (WIOD) and the hypothesis extraction method to simulate several scenarios of GVC reconstruction on economic growth and employment. From the analysis, we find that: (1) GVC reconstructions caused by USA–China decoupling would have a greater impact on China than on the USA. If USA–China bilateral trade is replaced by the surrounding economies, China's GDP and employment would fall by 2.57% and 2.34%, respectively. (2) The effects on regional economies are synergistic, with the countries directly surrounding China and the USA being more affected than India and most European countries. (3) USA manufacturing may benefit from the manufacturing repatriation policy, but the overall impact on economic growth would be limited. (4) In all reconstruction scenarios, global GDP figures are lower than they are today, demonstrating the importance of maintaining existing GVCs.

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  • Jie Wu & Jacob Wood & Xianhai Huang, 2021. "How does GVC reconstruction affect economic growth and employment? Analysis of USA–China decoupling," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 35(1), pages 67-81, May.
    • Handle: RePEc:bla:apacel:v:35:y:2021:i:1:p:67-81
    DOI: 10.1111/apel.12319
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    2. Alessandro Borin & Gianmarco Cariola & Elena Gentili & Andrea Linarello & Michele Mancini & Tullia Padellini & Ludovic Panon & Enrico Sette, 2023. "Inputs in geopolitical distress: a risk assessment based on micro data," Questioni di Economia e Finanza (Occasional Papers) 819, Bank of Italy, Economic Research and International Relations Area.
    3. Ludovic Panon & Laura Lebastard & Michele Mancini & Alessandro Borin & Peonare Caka & Gianmarco Cariola & Dennis Essers & Elena Gentili & Andrea Linarello & Tullia Padellini & Francisco Requena & Jaco, 2024. "Inputs in Distress: Geoeconomic Fragmentation and Firms’ Sourcing," Working Papers 2436, Banco de España.
    4. Emily Blanchard & Amelia U. Santos-Paulino & Claudia Trentini & Emanuel Milet, . "Implications of rising trade tensions for FDI projects," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    5. Lu, Yuxin & Sica, Edgardo & Wolszczak-Derlacz, Joanna, 2024. "Global value chains, wages, employment and labour production in China: A regional approach," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 124-142.

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