The worsening conflict between China and the US 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, reported Bloomberg.
The country’s potential growth rate could fall to about 3.5% in 2030 if it decouples with the US, 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. The US 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.