Tracing CO2 emissions in China-US trade: A global value chain perspective

Abstract

In the context of global value chains (GVCs), CO2 emissions embodied in trade should be based on the decomposition of trade in terms of value-added. The hypothetical extraction method (HEM) is a simple and clear way to trace value-added not only in gross exports but also in bilateral exports. This paper applies the HEM approach to identify the CO2 emissions induced by China-US trade in 189 countries and 26 sectors from 1996 to 2015. The results show that China's exports to the US mainly generate CO2 emissions in Asian, European and African countries in addition to China and the US, while US exports to China mainly generate CO2 emissions in Asian, European and North American countries. On average, the US transfers 19% of its CO2 emissions abroad for the production of its exports to China, while China transfers only 6.4% to abroad for its exports to the US. The CO2 emissions generated in the US and other countries by US exports are mostly generated in the services sector, but in China, such emissions are generated in the manufacturing sector. China is a net carbon exporter in China-US trade, but the environmental deficit is decreasing after 2007. For the same environmental cost, the value-added benefits of US-China exports are much higher than those of China-US exports, but the gap is being closed.