An economy-wide and environmental assessment of an imported supply shortage for iron ore: The case of China

Abstract

Recently, geopolitical conflicts continue to intensify, with profound effects on global supply security of key mineral resources. Considering China's high dependence on foreign iron ore, once there is an import shortage, what impacts will it have on China's macro-economy and environment? Thus, using a computable general equilibrium model, this study introduced import supply disruption behaviour to assess the economy-wide and environmental effects of a large-scale iron ore import shortage on China. Furthermore, two supporting measures of enhancing upstream mining and cancelling steel import tariffs were constructed. The results demonstrated that an import shortage of iron ore will generate a negative effect on China's GDP and household welfare, wherein the higher the disruption degree, the greater the negative effect will be, and the maximum loss of GDP is 5.6% in 2035. Secondly, total energy demand has reduced obviously, and the largest decline is 8.8% in 2035. Particularly, the coal demand is most negatively affected by GDP loss, shrinking by up to 11.4% by 2035. Meanwhile, the oil and gas demands have also dropped to some degree. Thirdly, the import disruption will help to reduce carbon emissions (by up to 9.9% in 2035), but also have obvious environmental benefits. Finally, both measures will help alleviate the negative socio-economic impacts; however, the overall effects will be better if enhancing upstream mining is complemented by carbon pricing.