Cutting through the Value Chain: The Long-Run Effects of Decoupling the East from the West

Key Messages

• A reciprocal economic decoupling between the EU and China would permanently reduce income in both economies by 0.8 percent and 0.9 percent respectively.
• A decoupling of Russia from the US and its allies would have much more severe long-term impacts for real income in Russia (-9.7 percent) than in the US and its allies (-0.2 percent).
• The reason for the uneven distribution of costs lies primarily in Russia's low economic importance compared with the US and its allies. Teaming up thus increases the harm imposed on the strategic rival.
• Eastern European countries would be more strongly affected by a decoupling from Russia because of their more intensive interlinkages with the Russian economy.
• A full decoupling between “East” (i.e. BRIC countries) and “West” (the US and its allies) would reduce income in both country groups on average by 3.9 percent and 1.3 percent respectively.