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

Wu, Jie, Wood, Jacob, and Huang, Xianhai (2021) How does GVC reconstruction affect economic growth and employment? Analysis of USA–China decoupling. Asian-Pacific Economic Literature, 35 (1). pp. 67-81.

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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.

Item ID: 67465
Item Type: Article (Research - C1)
ISSN: 1467-8411
Copyright Information: © 2021 Crawford School of Public Policy,The Australian National University and John Wiley & Sons Australia, Ltd
Date Deposited: 24 Jun 2021 03:01
FoR Codes: 38 ECONOMICS > 3801 Applied economics > 380110 International economics @ 100%
SEO Codes: 15 ECONOMIC FRAMEWORK > 1501 International trade policy > 150103 Trade policy @ 100%
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