Working Paper BETA #2022-22

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Title : The Political Relation and Trade - The Case of US, China and Australia

Author(s) : 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 Australia-China bilateral trade. By imposing a recursive identification scheme with different assumptions, the empirical results illustrate that worsening US-China political relations have a negative impact on Australian exports to and imports from China. Under a time-varying structural vector autoregression model, it is found that the deterioration in US-China political relations augments the negative impacts on Australia-China bilateral trade during the Trump’s administration. The empirical findings provide insightful policy suggestions to both Australian and Chinese governments.

Key-words : Structural vector autoregression, Local projection, Impulse response; US-China political relation; Australia-China trade

JEL Classification : C32, F14, F51