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Political Relations and Trade: New Evidence from Australia, China and the United States

Author

Listed:
  • Yifei Cai
  • Jamel Saadaoui
  • Yanrui Wu

Abstract

This paper employs structural vector autoregression and local projection methods to examine the impacts of the deterioration in US-China political relations on bilateral trade between Australia and China. Three scenarios are considered to reflect the evolution of US geopolitical strategies in recent years such as “America First”, “China Threat Theory” and “The Protection of US Allies”. The simulation results illustrate that worsening US-China political relations has a negative impact on Australian exports to and imports from China. It is also found that economic conditions in the US play a more important role in the transmission of this impact than those in China and Australia. In addition, various options are explored to check the robustness of the findings in this paper.

Suggested Citation

  • Yifei Cai & Jamel Saadaoui & Yanrui Wu, 2023. "Political Relations and Trade: New Evidence from Australia, China and the United States," Working Papers of BETA 2023-24, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2023-24
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    File URL: http://beta.u-strasbg.fr/WP/2023/2023-24.pdf
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    Cited by:

    1. António Afonso & Valérie Mignon & Jamel Saadaoui, 2023. "On the Time-Varying Impact of China’s Bilateral Political Relations on Its Trading Partners: “Doux Commerce” or “Trade Follows the Flag”?," CESifo Working Paper Series 10814, CESifo.

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    More about this item

    Keywords

    Structural vector autoregression; Local projection; Impulse response; USChina political relations; Australia-China trade.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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