Quantitative analysis of the U.S. chip embargo and China’s export controls on GaGe and graphite

Abstract

In response to the U.S. chip embargo, China has proposed export controls on crucial materials like gallium, germanium, and graphite. However, few studies have explored the economic impacts of these trade sanctions policies. This study aims to address this gap by examining theoretical mechanisms and constructing a global input–output database for the chip, gallium-germanium, and graphite sectors. Using a dynamic computable general equilibrium model, we evaluate the dynamic economic impacts of Sino–U.S. technological competition and conduct robustness tests. The results show that in the initial stage of policy implementation, under the most extreme situation of chip embargo, the GDP of China, U.S., and the world decreases by 1.051%, 0.006%, and 0.201%, respectively; that of Japan, South Korea, and Chinese Taiwan, which follow the U.S. in implementing chip sanctions, decreases by 0.109%, 0.177%, and 0.330%, respectively. China’s export controls on crucial raw materials are shown to reduce national economic damage and have a large negative impact on Japan, South Korea, and Chinese Taiwan. Moreover, these negative impacts tend to worsen over time. Our findings reveal that Sino–U.S. technological competition is unfavorable to the economic interests of the two countries and poses challenges to global economic recovery in the post-pandemic era, indicating the importance of narrowing the gap and reducing the confrontation between China and the U.S. for global economic growth.