The Impact of Carbon Tariffs on China’s Agricultural Trade

Abstract

On 15 March 2022, the European Council reached an agreement on the relevant rules of the Carbon Border Adjustment Mechanism (CBAM). In order to study the impact of the implementation of carbon tariffs on China’s agricultural trade, this paper sets three control groups, namely, economic development, the impact of the “Belt and Road” initiative’s (BRI’s) trade facilitation level, and separate taxation by different countries, and uses the dynamic Global Trade Analysis Project—Environment (GTAP-E) model for policy simulation. The empirical results show that, firstly, carbon tariffs can suppress international demand for agricultural products and increase international market prices. At the same time, under the pressure of carbon tariffs, China will reduce the main agricultural product’s Free on Board (FOB) prices to ensure that their Cost, Insurance and Freight (CIF) prices can maintain a competitive advantage in the international market after increasing the cost of carbon tariffs, and the market share of China’s agricultural products exported to recipient countries will decline. Secondly, China’s “Belt and Road” initiative has a two-way impact on carbon tariff policy. On the one hand, it reduces the negative impact of carbon tariffs through trade facilitation, and on the other hand, it will decrease the effectiveness of carbon emission reduction because of the huge trade demand and encourage countries to develop green and low-carbon agriculture. Finally, there is heterogeneity in the impact of carbon tariffs imposed by the United States, Japan, and Europe on Chinese agricultural trade.

Keywords

• carbon tariffs
• agricultural trade
• dynamic GTAP-E model
• “Belt and Road” initiative