Cutting through the value chain: the long-run effects of decoupling the East from the West.

With ever-increasing political tensions between China and Russia on one side and the EU and the US on the other, it only seems a matter of time until protectionist policies cause a decoupling of global value chains. This paper uses a computable general equilibrium trade model calibrated with the latest version of the GTAP database to simulate the effect of such a decoupling-implemented by doubling non-tariff barriers-between the two blocks on trade and welfare. Imposing import barriers almost completely eliminates bilateral imports.