Do political relations affect international trade? Evidence from China’s twelve trading partners

Gregory Whitten (), Xiaoyi Dai (), Simon Fan () and Yu Pang ()
Additional contact information
Gregory Whitten: Lingnan University
Xiaoyi Dai: Corporate Sales Division, China Mobile Hong Kong
Simon Fan: Lingnan University
Yu Pang: School of Business, Macau University of Science and Technology

Journal of Shipping and Trade, 2020, vol. 5, issue 1, 1-24

Abstract: Abstract China’s growing influence on the world has generated profound effects on the political and economic decisions of her partner nations. Recent conflict escalation between China and western countries gives rise to widespread concern over the possibility of delinking China from global trade and supply chain. By drawing on utility theory, we suggest that the political relationship is a key determinant of collective emotions of consumers and trading companies and consequently the interactions between importers and exporters. We hypothesize that warmer relations lead to larger increases (or smaller decreases) in trade while cooler relations have the opposite effect. Based on monthly data of China and her twelve trading partners from 1981 to 2019, our study provides an empirical investigation into the association between political relationship and bilateral trade flows. Our results show that shocks to relations are highly persistent and frequently cause changes in trade. However, relations themselves are little influenced by changes in trade, changes that show little persistence. We also address the US-China trade war and the observation that innovations to China’s exports to the US improve China’s relations with the US while shocks to American exports to China worsen relations from China’s perspective.

Keywords: International trade; Conflict; Political tensions; China (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (7)

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DOI: 10.1186/s41072-020-00076-w

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