Goldman Sachs warns that a potential financial decoupling between the US and China could lead to losses of up to US$2.5 trillion.

US investors might be forced to sell nearly US$800 billion in Chinese stocks listed on American exchanges. In turn, China could liquidate its holdings of US Treasuries and equities, estimated at US$1.3 trillion and US$370 billion, respectively.

This risk has increased after US Treasury Secretary Scott Bessent suggested delisting Chinese firms from US exchanges.

Currently, 286 Chinese companies are listed on US exchanges, including major tech firms valued at US$1.1 trillion.

Delisting could reduce access to US capital, lower valuations, and decrease liquidity. To mitigate these risks, some firms like Alibaba and PDD Holdings are pursuing secondary or dual-primary listings in Hong Kong.

🔗 Source: South China Morning Post

🧠 Food for thought

1️⃣ Financial decoupling unlikely to succeed despite political rhetoric

Despite current headlines, history shows that economic forces tend to resist political attempts at financial decoupling between the US and China.

From 1784 to 2018, bilateral trade grew to over $700 billion and two-way investment reached nearly $160 billion, creating deep interdependencies despite multiple periods of political tension 1.

This resilience explains why previous delisting threats in 2019 didn’t prevent continued cross-border investment, and why the latest Goldman Sachs report still describes complete decoupling as an “extreme scenario” rather than the expected outcome.

The US has already run experiments with partial financial decoupling. For example, when five state-backed Chinese companies delisted in 2022, market dynamics adapted with regulatory agreements and dual listings rather than triggering broader financial separation.

US companies’ economic self-interest continues to provide significant counterweight to political decoupling pressure, as evidenced by the 18% increase in American business participation at the China International Import Expo during previous tensions 1.

2️⃣ Supply chain reshaping already happening despite market headlines

The trade conflict has been gradually reshaping supply chains for years, with the US reducing its reliance on Chinese imports from 21% in 2016 to 13% in 2024 2.

This adaptation has happened without triggering the $2.5 trillion market shock described in the Goldman report, suggesting markets have been pricing in decoupling risks incrementally rather than as a single catastrophic event.