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Can the World Afford Russia-Style Sanctions on China?

Many academic studies suggest that sanctions on China or a break in Sino-American economic ties probably would have a smaller quantitative impact than one might think, at least over the medium to long term. But that is a theory better left untested.

CAMBRIDGE – As the global economic fallout from the current Western-led sanctions against Russia becomes clearer, are we watching a preview of what a trade and financial rupture with China might look like? Perhaps, but many academic studies of globalization’s net benefits suggest that sanctions on China or a break in Sino-American economic ties probably would have a smaller quantitative impact than one might think, at least over the medium to long term.

This is true for both the United States and China, which are large and relatively diversified economies. So, while an economic rupture with China may hurt the US and Europe less than one might assume, sanctions on China also might not prove nearly as effective as the measures against Russia have been.

To get an idea of the magnitude of the effects involved, consider the current debate in Europe on restricting Russian gas imports. Judging by European policymakers’ hesitancy, one might think that cutting off energy supplies from Russia, which provides about 35% of Europe’s natural gas, would doom the continent to an epic recession. But careful academic studies, including one by UCLA economist David Baqaee and co-authors, estimate that the negative effect of such a step on the German economy, which is particularly vulnerable, would likely be well under 1% of GDP, or 2% in an extreme scenario.

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