One can conclude the impact of a US-China economic split would be bigger by assuming that deglobalization would lead to a dramatic reduction in the variety of goods available to consumers, higher markups by local monopoly suppliers, and less “creative destruction” in the economy. Still, it is not easy to show that the effects of trade sanctions would be as crippling for either the US or China as they have been for Russia’s much smaller and less diversified economy.
More subtly, but perhaps as important, global financial pressures can sometimes force even autocratic governments to adopt better policies and institutions, with central bank independence being a leading example. In 2014, after Russia’s illegal annexation of Crimea, fear of a global bond-market reaction to the resulting sanctions apparently discouraged President Vladimir Putin from firing the central bank head, Elvira Nabiullina, when she raised interest rates to painful levels to fight inflation. In the event, she was widely credited with having prevented financial crisis and default. The Russian central bank’s status today is such that Putin is rumored to have refused Nabiullina’s resignation in the wake of the Ukraine invasion.
My best guess, while acknowledging the difficulty of proving the point, is that an overshoot in deglobalization could easily be disastrous, particularly in undermining innovation and dynamism. But many academic studies estimate a smaller-than-expected quantitative impact from a US-China economic rupture. That is the theory, at least. It would be much better not to test it.
Kenneth Rogoff, professor of economics and public policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. The co-author of "This Time is Different: Eight Centuries of Financial Folly," his new book, "The Curse of Cash," was released in August 2016.