Playing with Blocs: Quantifying Decoupling

Barthelemy Bonadio, Zhen Huo, Elliot Kang, Andrei Levchenko, Nitya Pandalai-Nayar, Hiroshi Toma and Petia Topalova

No 20664, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We adopt a data-driven approach to measure trade fragmentation over the period 2015-2023. Countries are classified into three groups according to changes in their trade costs with the US and China: those shifting toward the US bloc, those shifting toward the China bloc, and those with no change in alignment. Roughly one-quarter of countries moved toward each bloc, while about half showed no realignment. We document that while cross-bloc trade costs rose, they were accompanied by falling within-bloc trade costs. We use a quantitative model to compute the real income effects of this reconfiguration of the global trade costs. The median country in the world, and the median country within each bloc, has 0.4-0.6% higher real income as a result of the observed decoupling, contrary to the widespread belief that fragmentation has been welfare-reducing. Finally, we find a modest amount of bloc misalignment: the median country moving to the US bloc would actually be better off moving to the China bloc, and vice versa. These results suggest that trade decoupling does not always follow trade-driven economic interests.

JEL-codes: F41 F44 F62 L16 (search for similar items in EconPapers)
Date: 2025-09
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