CoPS/IMPACT Working Paper Number G-310

Title: Should Australia be Concerned by Beijing's Trade Threats: Modelling the Economic Costs of Restrictions on Imports of Australian Coal

Authors: J.A. Giesecke, N.H. Tran and R. Waschik

Abstract

The U.S.-China trade war can be viewed in part as a continuation of a wider recent pattern of use of trade instruments to advance political aims. Australia itself appears to have been subject to such instruments, with reports of a slowdown in processing of Australian coal imports through Chinese ports. Using a dynamic global model, we simulate the effects on Australia and China of a rise in Chinese barriers to Australian coal imports. We demonstrate that, when account is taken of trade diversion, foreign capital ownership, the terms of trade, resource mobility, and capital and production tax rates, the damage from Chinese coal trade sanction is far less than might be expected from a simple focus on the value of the affected trade alone. We explain the influence of these factors using a simple back-of-the-envelope model that reproduces the real consumption impact generated by the dynamic global model.


JEL classification: F13, F17, C68

Keywords: trade policy, coal embargo, multi-region CGE model



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