The Impacts of the Shrinkage in Goods Exports on Chinese Economy: A CGE Model-Based Scenario Analysis

Lin Sun

doi:10.5539/ass.v15n10p130

Abstract

Focusing on the shrinkage in goods exports, this paper quantitatively analyzes the impacts of Sino-US trade war on growth, trade, industrial production of China. The method used here is a dynamic simulation for the period from 2019 to 2030 based on a recursively dynamic CGE model of 18 industries. The impacts are analyzed and assessed by providing 5 alternative scenarios and by comparing their deviations from the baseline scenario. Three alternative scenarios are diffident forms of reduction in goods exports, and two alternative scenarios are diffident hedging measures to the impacts. A comparison of alternative scenarios reveals that the reduction in goods exports will significantly affect the nominal GDP but cause trouble for the real GDP of China. As the hedging measure, the currency depreciation ultimately only affects the price, and the effect on the real GDP is very limited. To increase the domestic real investment will result in the increase in imports and significantly hedge the loss of nominal GDP and cause a larger-scale trade deficit, and therefore need to be used with caution.

Highlights

Since March 2018, China and the United States have been engaged in a trade war as each country continues to dispute tariffs placed on goods traded between them
Shagdar & Nakajima (2018) analyzed the economic effects of the ongoing Sino-US trade war by using a CGE Model and GTAP Data Base 9.0a, the results show that both parties will be worse-off from this trade friction, having welfare losses and real GDP contractions, and the negative economic and trade impacts on China would be larger compared to those of the USA
In this paper, focusing on the goods exports scale decline caused by Sino-US trade war, we have investigated quantitatively its impacts on the macroeconomic level and industries in China from the point of view of growth, industrial structure and trade

Summary

Introduction

Since March 2018, China and the United States have been engaged in a trade war as each country continues to dispute tariffs placed on goods traded between them. Trump administration agreed to put off January 1, 2019, scheduled increase on tariffs on $200 billions of Chinese goods until early March while talks between the two countries take place. Li et al (2018) use a multi-country global general equilibrium (GE) model to numerically simulate the effects of possible Sino-US trade wars. Shagdar & Nakajima (2018) analyzed the economic effects of the ongoing Sino-US trade war by using a CGE Model and GTAP Data Base 9.0a, the results show that both parties will be worse-off from this trade friction, having welfare losses and real GDP contractions, and the negative economic and trade impacts on China would be larger compared to those of the USA. The above researches are based on the multi-national model and mainly study the impact of the Sino-US trade war on China and the United States and other countries, and lack the internal view of the Chinese economy.

Characteristics of the Model

The Dataset and Baseline of Model for the Chinese Economy

Simulation Scenarios

Findings

Summary and Conclusion