Could tariffs reduce overcapacity and environmental pollution? Evidence from China’s adjustment of tariffs on coal

Abstract

This study examines the economic, welfare, and environmental impacts of trade tariffs using China’s 2014 coal tariff adjustment as a quasi-experiment. Employing a global simulation model derived from computable partial equilibrium analysis, it reveals three notable findings. First, the tariff adjustment is surprisingly found to have had little impact on domestic coal production, although it did significantly restrain coal imports and promote coal exports. Second, the tariff adjustment had a positive impact on domestic producer welfare and net social welfare at the expense of consumer welfare when considering environmental benefits. If environmental effects are ignored, the net social welfare of the tariff adjustment policy is negative. Finally, the tariff adjustment had a detrimental effect on global welfare based on negative externalities regarding global welfare and the worldwide natural environment. This research contributes through emphasizing the combined effect of an industry-specific tariff policy on economic, welfare, and the arising environmental consequences in a large open economy such as China, while also examining domestic production overcapacity from a global perspective.