International Economic Impacts of Sino-US Technological Decoupling

 

**——A GTAP Simulation Analysis**

 

**Liu Zilin\(^1\), Zhao Chunlei\(^2\), Zhang Zhimin\(^1\)**

(1. School of Economics, Central University of Finance and Economics, Beijing 102206, China;

2. School of Economics and Management, Yantai Institute of Technology, Yantai 264005, China)

 

**Abstract**

Since 2018, the United States has actively promoted technological decoupling from China to maintain its hegemony in science and technology, which is bound to have profound impacts on the economies and trade of both China and the United States, as well as other countries worldwide. As the degree of technological decoupling between China and the U.S. deepens, the GDP, investment, and welfare levels of both countries decline significantly, with the U.S. experiencing a more pronounced contraction. Meanwhile, the total trade volume between the two countries sharply decreases, accompanied by diversified shifts in the geographic and industrial structures of imports and exports. In contrast, other countries and regions globally witness slight improvements in GDP, investment, and welfare under the decoupling scenario, with expanded trade volumes. While high-tech industries see increased imports and exports, other sectors suffer severe export losses but exhibit notable import growth. In response, China should manage differences through negotiation, expand Sino-U.S. technological cooperation, deepen openness to foster new channels for technological exchange, and enhance independent innovation to cultivate new productive forces, thereby achieving autonomous control over industrial supply chains.

 

**Keywords**

Technological decoupling; GTAP; Economy and trade; High-tech industries; GDP; Investment; Welfare level; Technological exchange

**CLC Number**

F752.4; F752.67

**Document Code**

A

**DOI**

10.3969/j.issn.1004-910X.2025.03.015

 

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### Introduction

Since the establishment of diplomatic relations in 1979, Sino-U.S. technological cooperation has fluctuated but generally trended toward mutual benefit. However, in recent years, as China’s technological capabilities have rapidly advanced, narrowing the gap in emerging fields such as artificial intelligence and 5G, the U.S. government has reassessed its approach to China. The Trump administration marked a turning point, escalating tensions through tariffs, export controls, visa restrictions for Chinese STEM students, and sanctions targeting Chinese tech firms and institutions. These measures aimed to accelerate technological decoupling, exemplified by the 2018 *Export Control Reform Act*, which restricted exports of critical technologies like semiconductors and AI to China.

 

The Biden administration adopted the EU’s “de-risking” rhetoric, framing its strategy as reducing dependency rather than full decoupling. However, U.S. actions—strengthening tech barriers, forming exclusionary alliances, and tightening export controls—reveal continuity in efforts to suppress China’s high-tech development. This long-term decoupling trajectory will inevitably reshape global trade and economic dynamics. This study addresses three key questions: How does technological decoupling impact China and the U.S.? Does it benefit the U.S. economy as intended? What are the global spillover effects?

 

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### Literature Review

Academic research identifies three drivers of U.S.-China technological decoupling: (1) U.S. security concerns over China’s technological rise; (2) efforts to preserve U.S. global tech dominance by blocking critical technology transfers; and (3) discriminatory perceptions rooted in “America First” populism. Scholars agree that decoupling harms bilateral GDP, trade, and innovation, fractures global tech ecosystems, and diminishes both nations’ competitiveness. However, existing studies focus narrowly on direct bilateral impacts, neglecting third-country effects.

 

This paper contributes by: (1) updating the GTAP 10.0 database to 2023 for realistic simulations; (2) analyzing high-tech manufacturing and services sectors; and (3) evaluating indirect impacts on other economies.

 

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### Methodology and Model Design

#### 2.1 Regional and Sectoral Settings

The GTAP model, developed by Purdue University, is a multi-region, multi-sector general equilibrium framework covering 141 regions, 65 sectors, and 8 production factors. This study aggregates regions into 11 groups (Table 1) and sectors into 8 categories, emphasizing high-tech industries.

 

**Table 1 GTAP Regional Aggregation**

| Region | Countries/Regions Included |

|——–|—————————–|

| China | China |

| U.S. | United States |

| EU | 27 EU member states |

| UK | United Kingdom |

| Japan | Japan |

| … | … |

 

#### 2.2 Scenario Design

Four scenarios simulate escalating decoupling:

– **Scenario 1**: Mild decoupling (20% trade reduction).

– **Scenario 2**: Moderate decoupling (50%).

– **Scenario 3**: Severe decoupling (99%).

– **Scenario 4**: Full decoupling (100%).

 

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### Simulation Results and Analysis

#### 3.1 Macroeconomic Impacts on China and the U.S.

– **GDP**: Both economies suffer losses, but the U.S. decline (-0.88% in Scenario 4) exceeds China’s (-0.69%).

– **Investment**: U.S. investment drops sharply (-2.42% in Scenario 4), reflecting heightened market uncertainty.

– **Welfare**: China’s welfare loss escalates with decoupling severity (-$1.7 trillion in Scenario 4), while the U.S. transitions from initial gains to severe losses (-$1.69 trillion).

 

**Table 3 Macroeconomic Effects**

| Country | Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 |

|———|————|————|————|————|

| **GDP (%)** | | | |

| China | -0.04 | -0.10 | -0.24 | -0.69 |

| U.S. | -0.01 | -0.07 | -0.33 | -0.88 |

| **Investment (%)** | | | |

| China | -0.11 | -0.27 | -0.49 | -1.00 |

| U.S. | -0.21 | -0.54 | -1.27 | -2.42 |

| **Welfare (USD billion)** | | | |

| China | -170.74 | -416.93 | -815.93 | -1719.79 |

| U.S. | 71.36 | 62.17 | -382.62 | -1692.23 |

 

#### 3.2 Trade Impacts

– **Exports**: China’s exports contract more severely (-12.32% in Scenario 4) due to disrupted global supply chains.

– **Imports**: China’s import decline (-16.28%) reflects reduced processing trade and domestic substitution. The U.S. sees milder import contractions, temporarily easing its trade deficit.

 

**Table 4 Trade Volume Changes**

| Country | Scenario | Export (%) | Import (%) | Trade Balance (USD billion) |

|———|———-|————|————|—————————-|

| **China** | 1 | -1.33 | -1.80 | -51.23 |

| | 2 | -3.26 | -4.38 | -127.86 |

| | 3 | -6.16 | -8.08 | -269.59 |

| | 4 | -12.32 | -16.28 | -523.08 |

| **U.S.** | 1 | -1.50 | -0.80 | 27.90 |

| | 2 | -3.32 | -1.85 | 85.60 |

| | 3 | -4.96 | -3.04 | 277.69 |

| | 4 | -10.72 | -7.31 | 645.20 |

 

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### Conclusions and Policy Recommendations

1. **Bilateral Impacts**: Decoupling harms both economies, with the U.S. experiencing greater losses.
2. **Global Spillovers**: Other regions benefit marginally from trade diversion, except in non-high-tech sectors.
3. **Policy Measures**:

– China should negotiate to manage disputes, expand tech cooperation, and deepen openness.

– Prioritize independent innovation to secure supply chains and foster new productive forces.

 

**References**

1. Zhang, K. H. (2023). *US-China Economic Links and Technological Decoupling*. The Chinese Economy, 56(5), 353–365.
2. Boustany, C. W., & Friedberg, A. L. (2020). *Partial Disengagement: A New U.S. Strategy for Economic Competition with China*. The Washington Quarterly, 43(1), 23–40.
3. GTAP Consortium. (2019). *The GTAP Data Base: Version 10*. Journal of Global Economic Analysis, 4(1), 1–27.