Reducing Carbon Emissions in China: An Evaluation of the Impact of carbon tax on International Trade Between China and the United States

Greenhouse gases global warming has begun to threaten the survival and development of mankind. National governments have realized the gravity of the situation and began to pay attention to the problem of carbon emissions. In response to potentially severe climate change consequences, the U.S. House of Representatives approved the "American Clean Energy and Security Act of 2009" in June 2009. The bill, in addition to setting the domestic CO2 and other greenhouse gas emissions reduction targets, also introduced the terms of carbon tariffs. The bill proposed to implement carbon tariffs on emissions-intensive imported products such as aluminum, iron and steel, cement and some chemical products, against those countries without strict Greenhouse Gas emission reduction policies. This bill has become by so far the world's first carbon reduction approaches put into legislative documents. China, as the largest trading partner of the United States, will be greatly affected. It can be predicted that this bill will have huge economic, social and political impact. However, the world economy just recovered from the financial crisis and people are also worried that carbon tax will impede the economic growth. In this context, The U.S. imposing carbon tax has aroused great social attention. China, the largest trading partner of U.S. is supposed to be significantly impacted. Energy-intensive products take a large share in China’s exports, and China’s export will be greatly impacted by carbon tax proposed by western countries. This dissertation examines the influence of carbon tax imposed by U.S. on China’s international trade. This study uses CGE modeling approaches to depict the impact of carbon tax on China’s international trade. The result indicates that China’s exports and imports will be negatively impacted by carbon tax. The tax will directly decrease Chinese products’ international competitiveness. Employment in China will plunge and China’s GDP growth will slow down. Since U.S. is China’s major trading partner, U.S. will also be significantly impacted by carbon taxes. In order to mitigate the impact, Chinese manufacturers should upgrade their products, move from carbon-intensive products to more environmental friendly products. The study also indicates that China’s whole economy and total exports will be negatively affected by carbon tax. In order to offset the adverse influence of carbon tax, Chinese firms should increase investment in energy efficiency technologies and improve products quality, thus improve the bargaining power in international business