Allied import options available? Finding friendly trade partners amidst decoupling from China

The US-China trade war – and broader changes in China’s economy, politics, and relations with the West – have created sharp increases in cost and risk for firms dependent on China. Under what conditions are firms willing and able to decouple from China? We argue that decoupling is only possible where viable alternative markets for sourcing and production are abundant. Geopolitically-aligned markets are particularly appealing amidst rising global tensions. We test this theory looking at product-level imports and show that declines in US imports from China were much larger for products previously sourced from many markets. Requests for suspensions of trade war tariffs are much more common for products that lack alternative markets. Both of these effects are entirely driven by product availability in allied and friendly alternative markets, highlighting firms’ geopolitical concerns in an era of global economic reordering. We conclude that the scope for decoupling is highly variable across industries and depends strongly on political factors: broad decoupling faces many obstacles and will require building alliances and international economic order.