Impact of Technological Decoupling between the United States and China on Trade and Welfare

We quantify the impact of trade and technology transfer restrictions between the United States (US) and China, technology protection policies in China, and export control laws in both countries through the US-China technological decoupling. To achieve this, we develop a dynamic quantitative general equilibrium trade model that considers foreign direct investment involving technology transfer. Our model comprises the final and intermediate goods sectors and assumes that only the latter utilizes technology capital. Our counterfactual analysis is based on data from 89 countries in 2016. We find that the US, China, and the world as a whole experience welfare losses owing to the US-China decoupling. We further observe that China’s technology protection policy affects not only countries with significant technology transfers from China but also those that rely heavily on technology capital. Countries with larger import shares from the US and China experience more substantial declines in the import of intermediate goods owing to the US and Chinese export control laws.