COVID-19 and Global Supply Chain Configuration: Economic and Emissions Impacts of Australia-China Trade Disruptions

Abstract

Economic shocks from COVID-19, coupled with ongoing US-China tensions, have raised debates around supply chain (or global value chain) organisation, with China at the centre of the storm. However, quantitative studies that consider the global and economy-wide impacts of rerouting supply chains are limited. This study examines the economic and emissions impacts of reorganising supply chains, using Australia-China trade as an example. It augments the Hypothetical Extraction Method by replacing traditional Input-Output analysis with a Computable General Equilibrium analysis. The estimation results demonstrate that in both exports and imports, a trade embargo between Australia and China – despite being compensated for by alternative supply chains—will cause gross domestic production losses and emissions increases for both countries and the world overall. Moreover, even though all other economies gain from the markets left by China, many of them incur overall gross domestic production losses and emission increases. The finding that the Association of Southeast Asian Nations and India may also suffer from an Australia-China trade embargo, despite a gain in trade volume, suggests that no country should add fuel to the fire. The results suggest that countries need to defend a rules-based trading regime and jointly address supply chain challenges.

The COVID-19 pandemic and energy transitions: Evidence from low-carbon power generation in China

“…The shock of COVID-19 has stimulated intensive research activities. The majority of these studies focused on investigating the economic effects of COVID-19 from multiple perspectives, such as economic output ( Morgan et al, 2021 ; Gharehgozli et al, 2020 ), household consumption ( Martin et al, 2020 ), labor employment ( Hershbein and Holzer, 2021 ), supply chain ( Shi et al, 2021 ) and financial market ( Ali et al, 2020 ; Baker et al, 2020 ; Ding et al, 2020 ). The COVID-19 effect on carbon emissions or air quality (i.e., PM2.5, PM10, and SO 2 ) has also been a hot topic.…”

Challenges to the supply chains in the context of COVID-19 pandemic

“…The priority sectors are: the medical system, critical resources, food and beverages, security, recycling and clean energy. Another initiative aimed at supporting supply chains in reducing their vulnerabilities, especially when it comes to basic necessities such as medicine, has received funding of $ 1.4 million (Shi et al, 2021).…”

The transition to carbon neutrality in China and its impacts on Australia

“…Tian et al (2022) estimate that the Regional Comprehensive Economic Partnership Agreement (RCEP), which covers both China and Australia, among other countries, would increase global emissions by about 3.1 per cent. Shi et al (2021a) examine the economic and emissions impacts of rerouting supply chains using Australia-China trade as an example.…”