Carbon-based border tax adjustments and China’s international trade: analysis based on a dynamic computable general equilibrium model

Abstract

This paper examines the impacts of the proposed carbon-based border tax adjustments (BTAs) on China’s trade, based on a multi-sector dynamic computable general equilibrium model including 7 energy sectors and 30 non-energy sectors and running up to the year 2030. Distinct from previous single China country models, our model disaggregates foreign accounts of China into four regions, including USA and the EU, to enable to examine the effects of re-routing trade flows. The results suggest that BTAs would have a negative impact on China’s trade. BTAs will directly decrease China’s exports, whereas Chinese exporting enterprises will accordingly modify their strategies. Moreover, BTAs will affect China’s total imports and sectoral import in an indirect but more intricate way. Furthermore, the simulation results for coping policies indicate that enhancing China’s power in world price determination and improving energy technology efficiency will effectively help mitigate the damages caused by BTAs.