Evading the ban: smuggling, pollution, and the welfare effects of China’s waste import restrictions

While import restrictions are increasingly deployed to achieve non-trade objectives such as environmental protection, they often create distortions and leakage through illicit trade. We examine this trade-off in the context of China's waste import ban. Although the policy produced measurable improvements in air and water quality, it also induced significant behavioral responses, including surging evasion via quantity underreporting, heightened smuggling-related criminal activity, and deteriorating performance among affected firms. To quantify the welfare effects, we develop a hybrid sufficient statistic framework that integrates reduced-form evasion elasticities with structural estimates of shadow costs. We find that the environmental gains were more than offset by the costs of smuggling and losses from distortions.