A complete decoupling would lead to a complete downfall of USD and therefore USA.
At the moment USA can continue its printing of USD, only because it can make use of the USD, i.e. other countries accept the USD. Most of the USD goes out of USA, as is evident of the increasingly wide trade deficit, and especially so with China/US trade deficit.
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Now if there is complete decoupling, where is USA going to spend that the printed USD? There is no way the rest of the world would come close to delivering to USA the $500b plus worth of goods that China was delivering to USA. In other words China is currently absorbing $400b plus of USD per year, and this $400b would have to find a new home. Two effects would come out of this:
- USA will not be able to import enough goods, including essential goods that it previously imported from China. This will lead to scarcity and therefore price inflation within USA. (Worldwide the price of goods would come down as China would need to sell the excess goods to the broader market)
- USA will not be able to find enough taker/buyer of USD, and it will lead to a collapse of USD.
BTW if there is complete decoupling, it is a foregone conclusion that China will simply no longer take any USD for trade, even for trade with European or ASEAN customers. In other words, USA cannot simply dump the USD to Europe/ASEAN, because sooner or later Europe/ASEAN will not accept confetti money it can't use other than for trade with the USA. The U.S. goods trade deficit with ASEAN was $120.2 billion in 2019; given that China is the largest trade partner with ASEAN; what is ASEAN going to do with $120b (or more) worth of confetti?
Even though USA would still probably be able to use the USD to buy raw material (such as oil) from its vassals, there are two problems with this. It will take years, if not a decade, to build up the industrial capacity to substitute good imports to take advantage of its access of raw material. Secondly, USA is mostly self-sufficient in food and raw materials (even energy) that it really doesn't need much.
So in short, complete decoupling means a collapse of USD's status of world reserve currency, and with that the end of US empire.
China would double dog dare USA to completely de-couple. What China needs to do in the meantime however to de-couple its food supply from USA; that's the number one priority.
(Also if this is better served to be in another forum, please move this post moderators)
