Carbon emissions and trade interdependence between China and the US

Abstract

China and the US were the world's top exporters and carbon emitters and the most crucial trading partners for each other at the same time. Trade interdependence between the two countries affect each country's carbon emissions, and linked to the world's total emissions. In order to research the effect of trade interdependence on carbon emissions of China and the US, we built a dynamic econometric model to distinguish long-term and short-term effects with datasets from 1992 to 2018 by means of the autoregressive- distributed- lag method. The results revealed that a 1% increase in trade interdependence was linked to a 0.038% decrease in China's carbon emissions and a 1.939% decrease in US emissions over the long-term. Moreover, trade interdependence produced a positive effect on China and US emissions in the short-term. In the short-term, trade interdependence decreased China's carbon emissions but increased US carbon emissions. By simulating a 1% of the counterfactual positive shock of trade interdependence, back- of- the- envelope estimations suggested a 0.220% reduction of carbon emissions for China and a 0.034% reduction for the US. At last, trade interdependence between China and the US, which reduced carbon emissions for each country in the long-term, so that policies on trade protectionism might not be necessary.