Clean Energy Trade Cooperation between USA and China and its Economic Impacts

Abstract

We study bilateral trade cooperation between the USA and China, along with its economic impacts. Trade Intensity Indices (TII) and Revealed Comparative Advantage indices (RCA) are investigated in six different clean energy categories including natural gas, solar, wind, biomass, hydro, and nuclear energy between 1992 and 2017. Data from TII and RCA indicate that clean energy trade cooperation between the USA and China needs to be strengthened. A Vector Autoregressive model (VAR) is established with one exogenous variable (oil price) and five endogenous variables including US TIIu, Chinese TIIc, US Gross Domestic Product (GDP), Chinese GDP and CO2 emissions. After verifying the model stationarity, impulse responses are obtained by applying positive impacts from TIIu and TIIc. The overall CO2 emissions will be reduced, and US GDP will increase. However, Chinese GDP will decrease as China is at early stages of clean energy development. To overcome the obstacles in the bilateral clean energy trade, both countries should coordinate their trade measures and devise effective policies beneficial to both countries.