<blockquote>
<p>Have any respectable economists made any predictions about the consequences of such a move for the global economy, including the Chinese and the US economies?</p>
</blockquote>
<p>As far as I can see there is no published paper that tries to examine the extreme scenario of absolutely cutting all trade with China. This is extremely unrealistic, for example even despite Russia and the West being in new cold war, USA (see <a href="https://www.census.gov/foreign-trade/balance/c4621.html" rel="nofollow noreferrer">US census</a>) and EU countries still have trade with Russia. This could realistically only happen in case there is open military conflict with China.</p>
<blockquote>
<p>Specifically, how would their respective GDPs, unemployment rates and real incomes change?</p>
</blockquote>
<p>Without creating and estimating parameters for some complex trade model it is impossible to put exact numbers on how much would real GDP (which also measures real incomes) and unemployment change. Estimating such models takes a lot of money, manpower and hours of work so it is completely unfeasible to do it for SE answer.</p>
<p>However, we can at least discuss the expected direction of above mentioned indicators using some theoretical model and general empirical observations. Generally speaking the aggregate real output (and thus both GDP and real income) is virtually always significantly lower under autarky than under trade (e.g. see multiple models presented in Feenstra Advanced International Trade: Theory and Evidence). In this case situation is a bit more complicated because USA and China would still be able to trade with other countries, so the drop in real output might not be as large as in actual autarky, but there will still be some. When it comes to unemployment this could go either way as it would depend on the production function in the affected industries and also it would depend on how business respond to it (e.g. companies could respond by automatization, and then it would be a question whether the new robots and labor are substitutes or complements - either case can be plausible).</p>
<p>Empirically, most studies find that closing to trade leads to lower level of real output and consequently incomes (e.g. see <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/pa.2081?casa_token=4ostkFaUt50AAAAA:2_kGqIBevPV8VgPfAdvrtTNExPKlX5GzpNYzpKE11RFCSkh_iYwd9XACdazu_NFRtOGb5q-axqBE" rel="nofollow noreferrer">Raghutla 2020</a>), there are also studies that show that even the limited trade war that Trump started had negative effect on US output. For example, <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/aepr.12286?casa_token=eKbzaYXDJIAAAAAA%3At1IdmQ1rcRFhiCB64rJOs7BwU-avWwWhlreAYyElaxa80jyBc12UKcB3t9svgU-bwzQDrDfy92yL" rel="nofollow noreferrer">Itakura (2019</a>) finds that US and China lost about −1.35% and −1.41% GDP respectively as a result of the trade war. What you propose is complete autarky between US and China so the effect would be much larger but it is hard to say how much.</p>
<p>Regarding unemployment the evidence is inconclusive, some studies finding that US - China trade had no significant employment effects, while other find some. There is good short review of empirical studies in Feenstra pp 115-116.</p>
<p>However, the studies above might not necessarily be extrapolated to such extreme scenario you propose. For example, a small reduction in trade due to some protectionist measures could boost employment despite negative effect on output but complete elimination of all trade could very well lead to less employment.</p>
<blockquote>
<p>Which country would be worse off as a result?</p>
</blockquote>
<p>Both countries would be likely worse off. If one of the countries could be better off not trading with the other partners they would not have trade relations in the first place. The reason why two countries trade with each other is that they, or more precisely people living in them, are better off by trading with each other.</p>
<p>For example, if someone in US would be better off by importing a good they currently import from China from Vietnam, they would already have strong economic incentive to switch to Vietnam. Empirical studies show that closing to international trade generally results in countries being worse of than before (e.g. see <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/pa.2081?casa_token=4ostkFaUt50AAAAA:2_kGqIBevPV8VgPfAdvrtTNExPKlX5GzpNYzpKE11RFCSkh_iYwd9XACdazu_NFRtOGb5q-axqBE" rel="nofollow noreferrer">Raghutla
2020</a>). Like in actual war, in trade wars there are no winners only losers, generally speaking.</p>

CC BY-SA 4.0
2022-09-07T21:15:42.957Z
2022-09-07T21:15:42.957Z
1muflon1
<p>What would happen if China were to suddenly stop all trade with the US (for political reasons)? Have any respectable economists made any predictions about the consequences of such a move for the global economy, including the Chinese and the US economies? Specifically, how would their respective GDPs, unemployment rates and real incomes change? Which country would be worse off as a result?</p>

CC BY-SA 4.0
2022-08-03T18:56:20.050Z
You are asking a very broad question! Maybe narrow it down to a particular area? For example, what would happen to US government debt? or to the US tech sector?
BrsG
CC BY-SA 4.0
2022-08-04T01:08:05.150Z
@BrsG I was thinking about broad indicators, like GDP, unemployment, etc.
MWB
CC BY-SA 4.0
2022-08-04T02:24:32.030Z
I will add a sub-question. Why does China or the US or any other **self-sufficient** country even need to trade with other countries? Most of their economies are (or can be) fueled from inside as opposed to by trade.
Isa
CC BY-SA 4.0
2022-08-04T04:51:56.557Z
@Isa Perez, maybe [this](https://economics.stackexchange.com/a/51552/40033) helps you understand why trade is usually beneficial. I cannot comment on the actual question, it is a very drastic change which is probably impossible to estimate properly because there will be many repercussions. There is [a lot of work](https://taxfoundation.org/us-china-tariffs-trade-war/) (just a quick source) on the impact of tariffs which already suggest very sizeable negative impacts on the economy.
AKdemy
CC BY-SA 4.0
2022-09-07T17:29:02.353Z
Hint: take a look at the keyword "autarky".
RegressForward
<international-trade><united-states><china><tariffs><sanctions>
What would happen if China were to suddenly stop all trade with the US?
MWB
# What would happen if China were to suddenly stop all trade with the US?

(Asked by: username_0 on 2022-08-02)

What would happen if China were to suddenly stop all trade with the US (for political reasons)? Have any respectable economists made any predictions about the consequences of such a move for the global economy, including the Chinese and the US economies? Specifically, how would their respective GDPs, unemployment rates and real incomes change? Which country would be worse off as a result?

**Tags:** international-trade, united-states, china, tariffs, sanctions
> **Comments:**
> **username_1**: You are asking a very broad question! Maybe narrow it down to a particular area? For example, what would happen to US government debt? or to the US tech sector?  
> **username_0**: @BrsG I was thinking about broad indicators, like GDP, unemployment, etc.  
> **username_2**: I will add a sub-question. Why does China or the US or any other **self-sufficient** country even need to trade with other countries? Most of their economies are (or can be) fueled from inside as opposed to by trade.  
> **username_3**: @Isa Perez, maybe [this](https://economics.stackexchange.com/a/51552/40033) helps you understand why trade is usually beneficial. I cannot comment on the actual question, it is a very drastic change which is probably impossible to estimate properly because there will be many repercussions. There is [a lot of work](https://taxfoundation.org/us-china-tariffs-trade-war/) (just a quick source) on the impact of tariffs which already suggest very sizeable negative impacts on the economy.  
> **username_4**: Hint: take a look at the keyword "autarky".  

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## 1 answers

### Answer by username_5 on 2022-09-07. Score: 2 | Accepted answer

> Have any respectable economists made any predictions about the consequences of such a move for the global economy, including the Chinese and the US economies?

As far as I can see there is no published paper that tries to examine the extreme scenario of absolutely cutting all trade with China. This is extremely unrealistic, for example even despite Russia and the West being in new cold war, USA (see [US census](https://www.census.gov/foreign-trade/balance/c4621.html)) and EU countries still have trade with Russia. This could realistically only happen in case there is open military conflict with China.

> Specifically, how would their respective GDPs, unemployment rates and real incomes change?

Without creating and estimating parameters for some complex trade model it is impossible to put exact numbers on how much would real GDP (which also measures real incomes) and unemployment change. Estimating such models takes a lot of money, manpower and hours of work so it is completely unfeasible to do it for SE answer.

However, we can at least discuss the expected direction of above mentioned indicators using some theoretical model and general empirical observations. Generally speaking the aggregate real output (and thus both GDP and real income) is virtually always significantly lower under autarky than under trade (e.g. see multiple models presented in Feenstra Advanced International Trade: Theory and Evidence). In this case situation is a bit more complicated because USA and China would still be able to trade with other countries, so the drop in real output might not be as large as in actual autarky, but there will still be some. When it comes to unemployment this could go either way as it would depend on the production function in the affected industries and also it would depend on how business respond to it (e.g. companies could respond by automatization, and then it would be a question whether the new robots and labor are substitutes or complements - either case can be plausible).

Empirically, most studies find that closing to trade leads to lower level of real output and consequently incomes (e.g. see [Raghutla 2020](https://onlinelibrary.wiley.com/doi/abs/10.1002/pa.2081?casa_token=4ostkFaUt50AAAAA:2_kGqIBevPV8VgPfAdvrtTNExPKlX5GzpNYzpKE11RFCSkh_iYwd9XACdazu_NFRtOGb5q-axqBE)), there are also studies that show that even the limited trade war that Trump started had negative effect on US output. For example, [Itakura (2019](https://onlinelibrary.wiley.com/doi/full/10.1111/aepr.12286?casa_token=eKbzaYXDJIAAAAAA%3At1IdmQ1rcRFhiCB64rJOs7BwU-avWwWhlreAYyElaxa80jyBc12UKcB3t9svgU-bwzQDrDfy92yL)) finds that US and China lost about −1.35% and −1.41% GDP respectively as a result of the trade war. What you propose is complete autarky between US and China so the effect would be much larger but it is hard to say how much.

Regarding unemployment the evidence is inconclusive, some studies finding that US - China trade had no significant employment effects, while other find some. There is good short review of empirical studies in Feenstra pp 115-116.

However, the studies above might not necessarily be extrapolated to such extreme scenario you propose. For example, a small reduction in trade due to some protectionist measures could boost employment despite negative effect on output but complete elimination of all trade could very well lead to less employment.

> Which country would be worse off as a result?

Both countries would be likely worse off. If one of the countries could be better off not trading with the other partners they would not have trade relations in the first place. The reason why two countries trade with each other is that they, or more precisely people living in them, are better off by trading with each other.

For example, if someone in US would be better off by importing a good they currently import from China from Vietnam, they would already have strong economic incentive to switch to Vietnam. Empirical studies show that closing to international trade generally results in countries being worse of than before (e.g. see [Raghutla
2020](https://onlinelibrary.wiley.com/doi/abs/10.1002/pa.2081?casa_token=4ostkFaUt50AAAAA:2_kGqIBevPV8VgPfAdvrtTNExPKlX5GzpNYzpKE11RFCSkh_iYwd9XACdazu_NFRtOGb5q-axqBE)). Like in actual war, in trade wars there are no winners only losers, generally speaking.


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