Strategic Autonomy or Economic Drag? Quantifying the Costs of U.S.-China Trade Decoupling

 This paper quantifies the macroeconomic and sectoral welfare effects of ongoing U.S.-China trade decoupling under different reshoring scenarios. Using a global input-output model with 56 sectors and 121 countries, we simulate tariff increases, export controls, and supply chain relocation policies. Full decoupling reduces U.S. real GDP by 0.8% annually and Chinese GDP by 1.2%, with semiconductor, rare earth, and pharmaceutical sectors facing cost increases of 15–30%. However, partial decoupling—limited to critical national security goods (about 7% of bilateral trade)—has negligible aggregate costs (0.1% GDP loss) while reducing strategic dependencies. We also find that reshoring to allied nations (friendshoring) halves the efficiency losses compared to full domestic reshoring. The article concludes that targeted decoupling with investment in allied supply chains is cost-effective, but broad protectionism imposes significant economic drag.