Does political conflict affect bilateral trade or vice versa? Evidence from Sino-U.S. relations

Chi-Wei Su, Yu Song, Ran Tao and Lin-Na Hao

Economic Research-Ekonomska Istraživanja, 2020, vol. 33, issue 1, 3238-3257

Abstract: This paper investigates the dynamic causal relationship between Sino-U.S. political conflict and bilateral trade using a time-varying (bootstrap) Granger full-sample causality test and sub-sample rolling window estimation. The result indicates that Sino-U.S. political conflict and bilateral trade may interact in various ways. Bilateral trade has both positive and negative effects on political conflict in several sub-phases, and in turn, political conflict has the same impacts on bilateral trade. In general, the relationship between Sino-U.S. political conflict and bilateral trade is not always consistent with the model of Polachek, which states bilateral trade has significantly reduced political conflict. In the face of a severe economic situation, China and the U.S. government should strengthen trade cooperation and seek common ground of economic interests in order to expand the improvement of political relations.

Date: 2020
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DOI: 10.1080/1331677X.2019.1694559

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