{ "id": "S13", "slug": "great-power-detente", "title": "A great-power agreement lowers economic security barriers", "version": "0.5.0", "status": "active", "orientation": "upside", "family": "B", "short_title": "Great-power détente", "thematics": [ "economic-security-supply-chains", "ai-cyber-digital", "resilience-crisis-preparedness" ], "likelihood_type": "systemic", "likelihood_note": null, "scores": { "likelihood_2y": { "band": 1, "rationale": "The October 2025 leaders' meeting suspended selected measures for one year and removed few of them. The Standard Severe event requires most tariffs imposed since 2018 removed, technology restrictions relaxed, monitoring in force and military incident rules agreed, all in one package. The 2020 Phase One agreement, a narrower bargain, left most tariffs in place and missed its purchase targets. No negotiation of this breadth is under way, and technology controls now rest on national security law in both capitals." }, "likelihood_10y": { "band": 3, "rationale": "Rivalries have been stabilised by negotiation before: the United States and China in 1972, and the United States and the Soviet Union in 1972 and 1987. Each followed a crisis or a change of strategic calculation, and none was widely expected two years ahead. Over ten years several leadership transitions and at least one serious military incident are probable. The combination of tariff removal, relaxed controls and monitoring is demanding, which holds the rating at Possible." }, "impact_systemic": { "level": 4, "rationale": "IMF staff estimates published in 2023 put the long-run cost of severe trade fragmentation at up to 7 per cent of global output. The scenario reverses a material part of that cost between the two largest economies and their suppliers. Restricted trade worth at least 1 per cent of global GDP reopens within 18 months, and investment, technology diffusion and lower risk premia add to the direct effect. Shifts are widespread across trade, technology and defence, and some are structural." }, "impact_national": { "level": 4, "rationale": "For a typical highly exposed nation the highest dimensions are economic damage and international position. Economies that gained assembly orders and investment from diversion after 2018, producers financed on tariff protection and allies whose defence planning assumed sustained confrontation each face a change large enough to move capability bands. The two parties and trade-dependent technology users record gains of the same scale. Level 4 marks the size of the change in either direction." }, "confidence": { "level": "low", "reason": "The event has no close precedent between these two powers, output estimates rest on contested fragmentation models and the panel differed on national impact and on two-year likelihood." }, "priority": 4, "tier": "III", "source": "model-panel-v0.5" }, "scorecard": { "onset": "months", "duration": "3 years (implementation and first review)", "warning": "months", "scope": "global", "origin": "negotiated (between great powers)", "external_support": "full", "policy_response": "current plans executed", "recovery_horizon": "years (adjustment for protected producers)" }, "summary": "The United States and China implement a monitored agreement that removes most bilateral tariffs imposed since 2018 and relaxes selected technology restrictions, while controls on the most advanced and military-use items remain. Crisis communication and military incident rules reduce the risk of confrontation around Taiwan without resolving sovereignty claims. Within 18 months of entry into force, restricted trade worth at least 1 per cent of global GDP becomes accessible again. Competition continues under clearer rules, and unrelated regional wars are not assumed to end. Nations must revise industrial policy, supplier arrangements and defence planning. Protected producers and economies that gained from trade diversion face immediate adjustment.", "distribution": { "gains": [ "Trade-dependent economies with competitive exporters selling to both markets", "Technology users regaining access to mature chips, processed minerals and equipment", "Consumers and manufacturers in the two parties, through lower import and input prices", "Shipping, insurance and trade finance on Pacific routes", "States near the Taiwan Strait, through a lower risk of military confrontation" ], "loses": [ "Producers financed on tariff protection or on subsidy premised on continued restrictions", "Economies that gained assembly orders and investment from trade diversion after 2018", "Alternative suppliers of rare earths and critical minerals that relied on a security premium", "Middle powers whose leverage came from being sought as partners by both sides", "Allies outside the talks whose security assumptions are revised without them" ] }, "narrative": { "dateline": "June 2031", "text": "The agreement was signed in Geneva in September 2029 and entered into force in January 2030, after fourteen months of talks that began with a near-collision between naval vessels in the Taiwan Strait. It had three parts. The first removed, in four stages over 18 months, about 80 per cent of the bilateral tariffs imposed since 2018. The second replaced blanket export restrictions on mature semiconductors, rare earth materials and commercial software with a published list and a 60-day licensing deadline. Controls on the most advanced chips, on leading-edge chipmaking equipment and on military end uses stayed in place. The third set rules for encounters between military ships and aircraft, opened a staffed crisis line between theatre commands and required notice of large exercises near Taiwan. It did not address sovereignty. Each government restated its existing position in a separate annex.\n\nA joint commission met each quarter and published compliance data. By June 2031 it had recorded two disputes over licensing delays, both settled within the 90-day procedure. Bilateral goods trade was 35 per cent higher than in 2029. Counting inputs and equipment that third-country firms could again sell to both markets, the trade reopened was a little over 1 per cent of global GDP. Container rates on Pacific routes fell and insurers reduced war-risk loadings for the Taiwan Strait.\n\nThe adjustment was immediate for some. Battery, solar module and mature chip plants in North America and Europe that had been financed on a tariff margin reported losses within two quarters, and three governments extended subsidies they had planned to end. Assembly orders that had moved to Vietnam, Mexico, Malaysia and India after 2018 partly returned to direct routes. Export growth in those economies slowed sharply in 2030, although capacity already built stayed in place. Suppliers of rare earths and gallium outside China lost the price premium that had supported new mines.\n\nAllied governments had not been party to the talks. Several in the Indo-Pacific and Europe reviewed defence plans that had assumed a rising risk of confrontation. Most held spending flat in real terms and did not cut it, because wars elsewhere continued and either party could end the agreement on six months' notice. Legislatures in both capitals held hearings on verification. One chamber voted on a motion to suspend the second tariff stage, and the motion failed.\n\nBy the first review, the states that had gained most were those with open trade, competitive exporters and regulators able to revise industrial policy quickly. Those that had lost most had built capacity or diplomatic leverage that depended on the restrictions remaining." }, "anchors": [ { "shock_id": "nixons-visit-to-china-1972", "date": "February 1972", "event": "Nixon's visit to China", "what_happened": "Ended more than two decades without official contact between the United States and the People's Republic of China. The Shanghai Communiqué recorded each side's position on Taiwan without resolving it. Full diplomatic relations followed in January 1979. Allies, including Japan, were given little notice of the opening.", "calibrates": "A rivalry can be stabilised by setting the sovereignty question aside in agreed language. Allies outside the talks adjust afterwards, which is the basis for the High load on influence and cohesion." }, { "shock_id": "incidents-at-sea-agreement-1972", "date": "25 May 1972", "event": "US–Soviet Incidents at Sea Agreement", "what_happened": "The United States and the Soviet Union agreed rules for encounters between their naval ships and aircraft on and over the high seas, including signalling, safe distances and annual review meetings. The agreement stayed in force through later periods of tension.", "calibrates": "Military incident rules can be agreed and kept between rivals without a political settlement. This is the model for the scenario's encounter rules, crisis line and exercise notification." }, { "shock_id": "inf-treaty-1987", "date": "December 1987", "event": "INF Treaty", "what_happened": "The United States and the Soviet Union agreed to eliminate all ground-launched missiles with ranges of 500 to 5,500 kilometres. By June 1991 2,692 missiles had been destroyed under on-site inspection. The United States withdrew from the treaty in 2019.", "calibrates": "Intrusive verification between rivals is feasible, and a verified agreement can still end. Sets the monitoring assumption and the durability parameter." }, { "shock_id": "chinas-wto-accession-2001", "date": "December 2001", "event": "China's WTO accession", "what_happened": "China joined the WTO on 11 December 2001 after committing to tariff cuts and legal changes. Its goods exports rose from about US$266 billion in 2001 to about US$1.58 trillion in 2010.", "calibrates": "The scale and speed of the trade response when market access is secured by rules, and the adjustment cost for import-competing producers elsewhere." }, { "shock_id": "us-china-phase-one-agreement-2020", "date": "15 January 2020", "event": "US–China Phase One agreement", "what_happened": "China committed to buy an additional US$200 billion of United States goods and services over 2020 and 2021. On the Peterson Institute for International Economics count, purchases reached about 58 per cent of the target. Most tariffs imposed since 2018 stayed in place.", "calibrates": "Counter-anchor on likelihood and design. A narrow bargain built on purchase targets, without effective monitoring, did not lower barriers. Standard Severe requires tariff removal and published compliance data." }, { "shock_id": "us-china-leaders-meeting-2025", "date": "30 October 2025", "event": "US–China leaders' meeting", "what_happened": "The two leaders met in Busan. The United States halved its fentanyl-related tariff on Chinese goods to 10 per cent, and China suspended for one year the rare earth export controls it had announced on 9 October.", "calibrates": "Distance from Standard Severe: a one-year suspension of selected measures, with core tariffs, chip controls and military issues left open." } ], "parameters": { "common": { "severity": { "major": "major", "severe": "severe", "extreme": "extreme" }, "duration": { "major": "1 year", "severe": "3 years", "extreme": "5 years" }, "onset": { "major": "years", "severe": "months", "extreme": "months" }, "warning": { "major": null, "severe": "months", "extreme": null }, "scope": { "major": null, "severe": "global", "extreme": null }, "origin": { "major": null, "severe": "negotiated", "extreme": null }, "external_support": { "major": null, "severe": "full", "extreme": null }, "concurrency": { "major": null, "severe": "standalone", "extreme": null }, "policy_response": { "major": null, "severe": "current plans executed", "extreme": null }, "recovery_horizon": { "major": "months", "severe": "years", "extreme": "structural" } }, "specific": [ { "name": "Share of bilateral tariffs imposed since 2018 that is removed", "default": "80 per cent", "range": "50 to 100", "unit": "per cent", "note": "Measured on the trade-weighted average tariff each party applies to the other's goods." }, { "name": "Restricted trade made accessible within 18 months", "default": "1 per cent of global GDP", "range": "0.5 to 2", "unit": "per cent of global GDP", "note": "Counts bilateral trade and third-country sales of inputs and equipment that the restrictions had blocked." }, { "name": "Technology restrictions relaxed", "default": "mature semiconductors, rare earth materials and commercial software", "range": "options: none / mature semiconductors only / most controls outside military end use", "unit": null, "note": "Controls on the most advanced chips, leading-edge equipment and military end uses remain in every setting." }, { "name": "Implementation period for tariff stages", "default": "18 months", "range": "12 to 36", "unit": "months", "note": "A shorter period raises the adjustment cost for protected producers." }, { "name": "Monitoring arrangement", "default": "joint commission with published quarterly compliance data", "range": "options: declaratory only / joint commission / third-party verification", "unit": null, "note": "The declaratory setting corresponds to the 2020 Phase One design." }, { "name": "Military incident arrangements", "default": "encounter rules, staffed crisis line and exercise notification", "range": "options: crisis line only / encounter rules and crisis line / all three", "unit": null, "note": "Sovereignty claims over Taiwan are unchanged in every setting." }, { "name": "Withdrawal notice", "default": "6 months", "range": "3 to 24", "unit": "months", "note": "Sets how much reversal risk remains in investment and defence planning." } ] }, "transmission": [ "A military incident near Taiwan is contained, and both governments open talks covering trade, technology restrictions and military encounters.", "The agreement enters into force. Bilateral tariffs imposed since 2018 are removed in stages over 18 months and selected technology controls move to a published list.", "Encounter rules, a staffed crisis line and exercise notification lower the assessed risk of confrontation. War-risk insurance loadings and shipping costs fall.", "Direct bilateral trade and third-country sales to both markets recover. Input prices fall for manufacturers and technology users.", "Producers financed on tariff protection and economies that gained diverted orders lose margins, orders and new investment.", "Governments revise industrial policy, subsidy programmes and supplier requirements. Some extend support to protected plants.", "Allies and middle powers review defence plans and alignment as the leverage gained from rivalry declines. Most hold defence spending flat.", "Domestic opponents in both capitals contest verification, and the withdrawal clause keeps reversal risk in investment decisions." ], "loading": [ { "dimension": "Hard", "domain": "defence-security", "load": "High", "channel": "Force posture, alliance guarantees and procurement plans are revised as confrontation risk falls and competition continues" }, { "dimension": "Hard", "domain": "strategic-infrastructure", "load": "Low", "channel": "Ports and shipping routes carry redirected trade; networks are not placed under new stress" }, { "dimension": "Hard", "domain": "critical-technology", "load": "High", "channel": "Selected chip, mineral and software controls are relaxed; subsidised domestic capacity loses its protected market" }, { "dimension": "Soft", "domain": "government-effectiveness", "load": "Medium", "channel": "Industrial policy, licensing and subsidy programmes must be revised within the 18-month schedule" }, { "dimension": "Soft", "domain": "human-capital", "load": "Low", "channel": "Research and student exchange reopen in part; workers in protected plants need redeployment" }, { "dimension": "Soft", "domain": "influence-cohesion", "load": "High", "channel": "Allies and middle powers lose leverage gained from rivalry; domestic opponents contest the agreement" }, { "dimension": "Economic", "domain": "macro-financial", "load": "Medium", "channel": "Import prices and risk premia fall; capital moves away from economies that gained from diversion" }, { "dimension": "Economic", "domain": "industry-trade-supply", "load": "High", "channel": "Direct trade recovers; diversion economies and protected producers lose orders and margins" }, { "dimension": "Economic", "domain": "energy-resources", "load": "Medium", "channel": "Rare earth and critical mineral licensing eases; alternative mining and processing projects lose their price premium" } ], "stakeholders": { "government": { "exposure": "Industrial policy, export control regimes and defence planning premised on sustained rivalry; alliance commitments discussed without the allies present", "actions": [ "Test each industrial subsidy and tariff-dependent project against bilateral tariffs at their pre-2018 levels", "Seek written assurances on alliance commitments and on consultation before each review date of the agreement", "Prepare adjustment support for regions and workers in protected and diversion-dependent industries" ], "watch": [ "Tariff stage schedules and compliance reports from the joint commission", "Changes to export control lists and licence approval times", "Exercise notifications and reported unsafe military encounters near Taiwan" ], "relevance": 4 }, "technology": { "exposure": "Plants, supplier contracts and product plans designed around export controls and restricted market access", "actions": [ "Model plant economics and supplier contracts with selected controls lifted and tariff margins removed", "Maintain compliance systems for the controls on advanced and military-use items that remain", "Review second-source commitments against the withdrawal clause before cancelling any of them" ], "watch": [ "Published control lists and licence approval times", "Reviews of semiconductor and battery subsidy programmes", "Mutual recognition decisions and participation in standards bodies" ], "relevance": 3 }, "investors": { "exposure": "Holdings in protected manufacturing, diversion economies and alternative mineral supply lose value; shipping, trade finance and exporters to both markets gain", "actions": [ "Test portfolios against tariff removal over 18 months and a withdrawal on six months' notice", "Review assets whose returns depend on tariff protection or on a security price premium", "Reassess sovereign and currency exposure to economies reliant on diverted trade" ], "watch": [ "War-risk insurance loadings for the Taiwan Strait", "Export orders in Vietnam, Mexico, Malaysia and India", "Legislative votes on implementation in either capital" ], "relevance": 4 }, "public": { "exposure": "Lower prices for traded goods; employment at risk in protected plants and in export zones built on diverted trade", "actions": [ "Local governments should identify employers in their area that depend on tariff protection", "Media and civil society should track which commitments are monitored and which results are published", "Workers in exposed industries should take up retraining support when it is offered" ], "watch": [ "Tariff changes on consumer goods", "Announcements of plant closures or subsidy extensions", "Legislative hearings on the agreement" ], "relevance": 3 } }, "regions": [ { "region": "north-america", "exposure": "High", "rationale": "The United States is a party; consumers and exporters gain, while protected plants and Mexico's nearshoring trade lose" }, { "region": "europe", "exposure": "High", "rationale": "Faces renewed Chinese competition without tariff parity, and must review de-risking policy and defence assumptions" }, { "region": "china", "exposure": "High", "rationale": "Party to the agreement; export access and selected technology inputs are restored under monitoring" }, { "region": "indo-pacific", "exposure": "High", "rationale": "Incident risk around Taiwan falls; Vietnam, Malaysia and Thailand lose diverted orders and allies review defence plans" }, { "region": "south-asia", "exposure": "Medium", "rationale": "India loses part of its diversion gain and some leverage; lower input costs offset a share of the loss" }, { "region": "gulf-middle-east", "exposure": "Medium", "rationale": "Stronger trade supports energy demand; there is less room to balance between the two powers" }, { "region": "africa", "exposure": "Medium", "rationale": "Mineral exporters lose the premium from rival bidding; importers gain from lower prices of manufactured goods" }, { "region": "latin-america", "exposure": "Medium", "rationale": "Mexico loses part of its nearshoring advantage; commodity exporters gain from firmer demand in both markets" }, { "region": "russia-eurasia", "exposure": "High", "rationale": "Russia's value to China as a strategic partner falls; Central Asian transit and re-export trade is exposed" } ], "indicators": [ { "name": "Average tariff each party applies to the other's goods", "source": "Peterson Institute for International Economics, US–China tariff tracker; WTO Tariff Profiles", "threshold": "Trade-weighted average below 10 per cent on both sides", "cadence": "Quarterly" }, { "name": "Export control list additions and removals", "source": "US Bureau of Industry and Security, Entity List notices; China Ministry of Commerce announcements", "threshold": "Net removals in two consecutive quarters", "cadence": "Monthly" }, { "name": "Bilateral goods trade between the United States and China", "source": "US Census Bureau; General Administration of Customs of China", "threshold": "Year-on-year growth above 15 per cent for four consecutive quarters", "cadence": "Monthly" }, { "name": "Military-to-military contacts and reported unsafe encounters", "source": "US Department of Defense, annual report on military and security developments involving China", "threshold": null, "cadence": "Annual" }, { "name": "Military aircraft and vessel activity around Taiwan", "source": "Taiwan Ministry of National Defence daily reports", "threshold": "Sustained fall in monthly totals over six months", "cadence": "Daily" }, { "name": "New trade-restricting and trade-liberalising measures by the two parties", "source": "Global Trade Alert", "threshold": "Liberalising measures exceed restricting measures for two consecutive quarters", "cadence": "Monthly" }, { "name": "Foreign direct investment into economies that gained from trade diversion", "source": "UNCTAD World Investment Report", "threshold": null, "cadence": "Annual" }, { "name": "Defence spending plans as a share of GDP", "source": "SIPRI Military Expenditure Database; NATO defence expenditure reports", "threshold": null, "cadence": "Annual" } ], "compounds": { "triggers": [ { "id": "S12", "note": "Lower barriers between the two largest economies make a wider market access compact easier to conclude" }, { "id": "S11", "note": "Cooperation between the largest official creditors makes a common restructuring framework workable" }, { "id": "S14", "note": "External guarantors acting together can support a regional security framework" }, { "id": "S20", "note": "Shared surveillance and data exchange are easier to agree under reduced rivalry" }, { "id": "S08", "note": "Relaxed technology restrictions widen access to frontier models and chips and speed deployment." }, { "id": "S15", "note": "freer trade in modules, cells and grid equipment" }, { "id": "S17", "note": "relaxed technology restrictions widen access to chips and licensed systems" } ], "triggered_by": [ { "id": "S01", "note": "The cost of divided trade creates the incentive to negotiate" }, { "id": "S03", "note": "A war that closes a sea route shows both powers the cost of unmanaged escalation" }, { "id": "S02", "note": "Shared financial distress has prompted cooperation between the two before" } ], "amplified_by": [], "triggered_by_other": [ "A military incident near Taiwan that both governments choose to contain", "A change of leadership or of electoral mandate in either capital" ], "amplifying_trends": [ "Great-power competition", "Tariff barrier normalisation", "Export controls & economic coercion", "Trade & investment fragmentation", "Technical standards competition", "Credibility of external commitments", "Alliance realignment & burden-shifting", "Rearmament & defence spending" ] }, "open_questions": [ "Whether restricted trade worth 1 per cent of global GDP can be reached from bilateral flows alone, or requires counting third-country trade that the controls had blocked.", "Whether an agreement that either party can end at short notice should be rated as a durable change or as a pause.", "How to rate allies and diversion economies, for which the event is a loss, within a record classed as upside.", "Whether the specification should fix which technology restrictions are relaxed, since national impact depends heavily on that list." ], "commentary": null, "overview": { "source": "model-panel-v0.5", "lenses": { "political": "Allied governments were not party to the talks. **Sovereignty claims are unchanged** and each legislature contests verification.", "economic": "Restricted trade worth **at least 1 per cent of global GDP** reopens within 18 months. Protected producers and diversion economies lose orders.", "social": "Prices of traded goods ease. **Jobs in protected plants** and in export zones built on diverted trade are at risk.", "technological": "Controls on mature chips, rare earths and commercial software give way to **a published list**. Restrictions on advanced and military-use items remain.", "legal": "A joint commission publishes compliance data and runs a 90-day dispute procedure. **Either party may withdraw** on six months' notice.", "environmental": "Trade in solar modules, batteries and processed minerals reopens, lowering **the cost of clean energy equipment**. Alternative mining projects lose their premium." }, "regions": { "north-america": "The United States is a party. Consumers and exporters gain; **plants financed on a tariff margin** report losses and Mexico's nearshoring trade slows.", "europe": "Renewed Chinese competition arrives **without tariff parity**. Governments review de-risking policy and hold defence spending flat.", "china": "Party to the agreement: **export access is restored** and selected technology inputs return, under quarterly monitoring.", "indo-pacific": "Incident risk around Taiwan falls. **Vietnam, Malaysia and Thailand** lose diverted orders and allies review their defence plans.", "south-asia": "India loses **part of its diversion gain** and some leverage. Cheaper inputs offset a share of the loss.", "gulf-middle-east": "Stronger trade supports energy demand, with **less room to balance** between the two powers.", "africa": "Mineral exporters lose **the premium from rival bidding**. Importers gain from lower prices of manufactured goods.", "latin-america": "**Mexico loses** part of its nearshoring advantage. Commodity exporters gain from firmer demand in both markets.", "russia-eurasia": "Russia's **value to China as a partner** falls. Transit and re-export trade through Central Asia is exposed." }, "evolution": { "lead_indicators": "Liberalising trade measures exceed restricting ones and export control lists record **net removals for two consecutive quarters**. Military activity around Taiwan falls over six months.", "triggers": "A near-collision between naval vessels in the Taiwan Strait is contained and opens fourteen months of talks. **The agreement enters into force**, with sovereignty claims unchanged.", "immediate": "Tariffs are removed in four stages over 18 months and selected technology controls move to a published list. **War-risk loadings and Pacific container rates fall**.", "post_immediate": "Trade worth at least 1 per cent of global GDP reopens. **Protected plants report losses within two quarters** and diversion economies lose orders; some governments extend subsidies.", "stabilisation": "Over three years to the first review, a joint commission publishes compliance data and settles disputes within 90 days. Allies hold defence spending flat; **protected producers adjust over years**.", "long_term": "Competition continues under clearer rules, but **either party can withdraw on six months' notice**. Reversal risk stays in investment and defence planning; capacity built on diverted trade remains." } }, "history": [ { "edition": 2027, "rank": null, "L2y": 1, "L10y": 3, "impact_systemic": 4, "impact_national": 4, "confidence": "low" } ], "changelog": [ { "version": "0.5.0", "date": "2026-10-09", "change": "Rebuilt in the second pass from Great-power détente and peace dividend: narrowed to a monitored United States and China agreement on tariffs, technology restrictions and military incident rules; the Ukraine settlement and peace dividend were removed and the ratings reset by the model panel." } ], "citation": "GINC (2027). Scenario S13 A great-power agreement lowers economic security barriers, Scenario Library v0.5. scenarios.ginc.org/scenarios/great-power-detente" }