How does trade policy uncertainty affect China's economy and energy?

Abstract

Facing increasing trade policy uncertainty, deeply understanding the impacts of trade policy shocks on the economy and energy is of vital realistic importance for China to respond to these shocks, strengthen economic resilience, and promote high-quality development. This study develops an integrating input-output model with economy and energy, and evaluates the extreme effects of trade policy uncertainty on the macro-economy, industry development, and energy consumption in China, based on bottom-line thinking. The results are shown as follows. Firstly, under extreme scenarios, trade restriction policies would harm China's economy with a maximum GDP decline of 5.65%. However, China's countermeasures against trade restrictions could reduce economic losses by an average of 2.07%. Secondly, the industries would be hit by trade policy uncertainty in varying degrees. Trade policy uncertainty would strike the textile and apparel industry, machinery industry and other manufacturing 7.64% greater than other industries on average. Thirdly, under extreme scenarios, trade restriction policies would decrease China's energy consumption with a maximum drop of 6.91%; China's countermeasures against this could raise energy consumption by an average of 2.46%. Fourth, the fossil energy consumption reduced by trade policy uncertainty would be 3.95% more than the non-fossil energy consumption on average.