How the "Rise of Great Power" Restrains Bilateral Trade Flows:Evidence from China and its Trading Partners
This article employs the gravity model of trade to examine how political relations have impacted international trade in the Chinese context, specifically by incorporating discussion of China's political relations with its major trading partners. Using data from China's trading partners obtained between 1990 and 2019, the article uses the generalised method of moments (GMM) and lagged vector autoregression (VAR) model to investigate whether the associated geopolitical risks appear to be temporary or enduring. Empirical results have shown that political conflicts present lagged effects (three months later) on China's exports to other countries and total trade volume with other countries, but have instantaneous effects on China's imports from other countries. Additionally, Chinese President Xi Jinping has much greater political influence on trade compared to his two predecessors (Jiang Zemin and Hu Jintao). Such an increased level of power is due to a diplomatic policy shift in which the nation has moved away from "keeping a low profile" (taoguang yanghui) to focus on the "rise of great power" (daguo jueqi). The escalation of political tension between China and its major trading partners will continue to have negative impacts on trade until hegemony is fully realised.
INTRODUCTION
To forecast general economic stability, it is crucial to analyse elements of political power, global economics and international trade. Amid the COVID-19 pandemic, political tensions between major trading partners have significantly impacted global trade while threatening fragile financial markets. Meanwhile, political tensions between the Group of Two (G2) countries have continued to increase, especially in recent years. Hence, assessing and quantifying the impacts of such geopolitical uncertainty on global trade are key to understanding the dynamics. A spike in political tensions could presumably decrease global trade activities, due largely to the increased uncertainty. [End Page 43] Obviously, the growth of China's economy in relation to the world market has profoundly affected the political and economic performance of its trading partner nations. In this context, recent political conflicts between China, the United States and other Western countries have catalysed widespread concern over the possibility that China would become delinked from global trade and value chains. Across a vast body of scholarly literature on political relations in international trade, most studies have found that political relations (or tensions in political relations) have significant negative effects on bilateral trade. For example, reports have generally shown that military conflicts have severe adverse effects on bilateral trade volume.1 Utilising the gravity model of trade, Glick and Taylor2 further demonstrated how wars between two countries have substantial and persistent impacts on trade.
Political conflicts also have adverse effects on bilateral trade volume.3 At the corporate level, foreign-invested companies and state-owned enterprises are more sensitive to political conflicts than normal entities are.4 Meanwhile, consumer boycotts in countries affected by political conflicts with other trading partners may also have stronger negative effects on bilateral trade in both goods and services.5 [End Page 44]
While most past studies have focused on political issues, this article targets the relationship between political relations and trade volume between China and its major global trading partners. More specifically, it examines how the existing political relations index could explain associations in the nexus between political relations and trade volume. The authors analyse the breakdown of exports, imports and total trade volume between China and five of its trading partners, including the United States, Australia, India, South Korea and Japan.
The article is organised as follows. The second section briefly summarises the nature of political and economic relations between China and the five major trading countries. The third section reviews the relevant literature, and the fourth presents data and discusses the empirical methodology. The fifth section discusses the main results and provides a breakdown of the empirical results, and the sixth offers a conclusion.
POLITICAL AND ECONOMIC RELATIONS BETWEEN CHINA AND ITS TRADING PARTNERS
China–United States Relations
International leaders and scholars have described the relations between China and the United States as the world's most important bilateral relationship in the 21st century.6 China–US relations historically remained fairly stable, although there have been periods of open conflict, most notably during the Korean War and Vietnam War. Stability returned and was increased when American leaders made three critical visits to China in 1998, thus laying the foundation for normalisation. Following these events, China steadily increased its import volume from the United States, with significant growth between 1998 and 2008 (Figure 1). However, a notable event occurred on 1 April 2001 when Chinese and American military aircraft collided over an exclusive economic zone on Hainan Island, within the People's Republic of China. Specifically, the accident caused a Chinese J-8 fighter jet to crash, resulting in the death of its pilots. The China–US relationship subsequently worsened and has dramatically declined since (Figure 2).
Relations between China and the United States had been strained by US President Barack Obama's Asia pivot strategy. Despite the tensions during Obama's tenure, 51 per cent of the Chinese population polled favourably towards the United States in 2016, Obama's final year as US president. Nevertheless, relations deteriorated sharply under US President Donald Trump. A 2020 survey conducted by the Pew Research Center showed that only 22 per cent of Americans held favourable opinions of China, [End Page 45]
China's Import Volume from its Trading Partners and Relevant Conflicts from 1990 to 2019 (US$ million)
Source: Data from the International Monetary Fund (IMF).
with 73 per cent expressing unfavourable views. The poll also found that a significant proportion (24 per cent) of Americans believed that China posed the top threat to the United States, whose administration first labelled China a "strategic competitor" in the context of the 2017 National Security Strategy. Trump eventually banned US companies' sale of equipment to Huawei and other enterprises linked to human rights abuses in Xinjiang, and implemented other targeted actions including imposition of student visa restrictions on Chinese nationals and scholars and labelling China as a currency manipulator. As such, China's imports from the United States plummeted in 2018, thus sparking a trade war (Figure 2). The United States and China also imposed various restrictive measures, particularly increased tariffs, on their respective trade flows. Political observers thus warned of the emergence of a new Cold War. China–US relations continually deteriorated throughout May 2020, as both countries made efforts to recruit allies in their attempts to pin the blame on each other for the COVID-19 global pandemic. These conditions were further exacerbated when the Chinese government authorised the National People's Congress Standing Committee to enact a Hong Kong national security law in 2020.7 According to statistics reported by the Chinese Ministry of Commerce in autumn 2020, the United States was China's [End Page 46] third-largest trading partner over the first 10 months of the year.8 Data have also shown that China was the largest trading partner of the United States, with US$560.1 billion in total trade volume.9
Political Relations between China and its Largest Trading Partners between 1990 and 2019
Note: THAAD denotes terminal high altitude area defense.
Source: Tsinghua University Institude of International Relations.
China–India Relations
China and India, both ancient civilisations and developing economies, are the top two most populous countries in the world. Although both nations established official diplomatic ties on 1 April 1950, cultural and economic connections between China and India date back to the ancient Silk Road, which not only served as a major trade route, but also facilitated the spread of Buddhism from India to East Asia. However, China and India share a border 2,100 miles long. Such a vast contiguous area has resulted in territorial disputes, when considered in totality, over more than 120,000 square kilometres. China is currently India's largest trading partner, while India is China's ninth largest.
Nevertheless, international conflicts have occurred despite the further deepening of cooperative economic/trade exchanges. In 1954, Chinese Premier Zhou Enlai and Indian Prime Minister Jawaharlal Nehru exchanged visits, and jointly advocated for [End Page 47] the Five Principles of Peaceful Coexistence. However, good times did not last long, as there were three subsequent border disputes, including those of the Sino–Indian War10 in 1962, the Chola incident in 1967 and the Sino–Indian skirmish in 1987. Despite growing economic and strategic ties, frequent border conflicts between contemporary China and India are a major point of concern. Meanwhile, India exhibited its steady economic rise from 1990 until the 2008 financial crisis. However, Chinese and Indian troops engaged in a tense standoff in the Donglang (Doklam) area on 7 June 2017,11 thus threatening armed confrontation and resulting in a sharp decline in relations (Figure 2). Since 5 May 2020, Chinese and Indian forces have allegedly conducted acts of aggression in many areas along the Line of Actual Control on the China–India border; indeed, several confrontations and skirmishes had resulted in casualties on both sides. Under these conditions, increased trade friction has hindered the largely healthy developments between China and India.
China–Korea Relations
Since the establishment of diplomatic relations between China and South Korea in August 1992, their bilateral relations have developed rapidly. Economically, the two countries have deepened their mutually beneficial cooperation, become important trading partners and engaged in increasingly cooperative exchanges involving culture, education, science, technology and in other fields. China is South Korea's largest trading partner, largest export market and largest source of imports, while South Korea is China's third-largest trading partner.12 However, South Korea accepted assistance from the United States in the deployment of the terminal high altitude area defense (THAAD) anti-missile system in 2016; the United States claimed that such a system was in South Korea's interest to protect itself from North Korean nuclear weapons and missile threats. However, China believes that THAAD will affect its homeland security, and it has thus taken a number of countermeasures against South Korea. For example, Chinese citizens' boycott of the Lotte Group, which eventually generally withdrew from the Chinese market, was an obvious outcome of the countermeasures. Such a move not only damaged the Lotte Group, but has also impacted negatively on South Korea's tourism industry and many other South Korean companies that had already made forays into the world's second-largest economy.13 These events rapidly cooled Sino–South Korean relations (Figure 2). [End Page 48]
By the end of October 2017, however, the two nations ended their year-long diplomatic dispute and quickly began to repair relations. These efforts have strengthened exchange and cooperation, created a harmony of interests and resumed all previous areas of collaboration. In 2018, total China–South Korea bilateral trade volume amounted to US$313.43 billion, which was an increase of 11.8 per cent. Meanwhile, China's exports reached US$108.79 billion over the same period in 2017, an increase of 5.9 per cent. Further, imports hit US$204.64 billion—an increase of 15.3 per cent. By the end of 2018, South Korea's actual investments in China totalled US$77.04 billion, while China's actual investments in South Korea totalled US$7.64 billion. South Korea is currently China's second-largest source of foreign direct investment (FDI), with China similarly being South Korea's second-largest overseas investment destination.14 With the exception of the brief disagreement over South Korea's 2016 THAAD deployment, there have not been many political disputes between the two nations.
China–Japan Relations
In the context of historical and cultural ties, the Chinese civilisation had a strong influence on Japan in many respects, including language, architecture, culture, religion, philosophy and law. However, Japan's long chain of invasions and war crimes in China between 1894 and 1945 as well as its modern nationalistic attitude towards the past have largely problematised current Sino–Japanese relations. In 1972, however, Japanese Prime Minister Kakuei Tanaka expressed ideas about normalisation. In the same year, US President Richard Nixon visited China to encourage the process, which formally established diplomatic relations between Japan and China. However, perceptions worsened when Japanese Prime Minister Junichiro Koizumi visited the Yasukuni Shrine in 2005, which aroused strong dissatisfaction in China. There have since been many anti-Japanese demonstrations.15
Essentially, cold politics and hot economic relations characterise the links between China and Japan (see Figure 2). On 7 September 2010, tension resurfaced when a Chinese fishing trawler collided with two Japanese Coast Guard patrol boats near a politically disputed group of islands in the East China Sea. Both China and Japan subsequently claimed sovereignty over these geographical territories, with the nations, respectively, referring to them as the Diaoyu or Senkaku Islands. While these rival claims date back to the late 19th century, tensions have increased, particularly since September 2012. The Japanese government purchased three of the islands from a private Japanese owner, which led to widespread anti-Japanese demonstrations in [End Page 49] China.16 Relations drastically deteriorated immediately after the Japanese government announced its so-called nationalisation of the Senkaku Islands in 2012. Although the dispute has since diminished and lost media interest, it remains an unresolved and persistently major problem between China and Japan. Nevertheless, both countries have continued to operate as important trading partners. Over the first 11 months of 2020, Japan was the fourth-largest trading partner of China. At the time, total trade volume between Japan and China reached RMB2 trillion, accounting for 6.9 per cent of China's total trade volume.
China–Australia Relations
Since the establishment of diplomatic ties between China and Australia on 21 December 1972, bilateral relations have developed considerably. Leaders from both countries have maintained regular contact and visitation. China is currently Australia's largest trading partner and it has even invested in Australian mining companies. During Australian Prime Minister Julia Gillard's administration, the two countries witnessed frequent political and economic exchanges and good overall relations. In 2015, Chinese President Xi Jinping made an official state visit to Australia, during which the China–Australia Free Trade Agreement (FTA) was reached. After its signing, China's imports from Australia gradually increased from a low point (Figure 2). However, relations began to deteriorate in 2018, when the Australian government banned Chinese smartphone maker Huawei from providing 5G technology to the country's wireless networks.17 Following the United States, Australia was the second country to ban Huawei over national security concerns.18
The COVID-19 pandemic has also created tensions between Australia and China, especially due to Australia's calls for an inquiry into the outbreak of the disease. Indeed, subsequent changes in Chinese trade policies were interpreted as a form of political retaliation against Australia. Even so, China remains its largest trading partner, due mainly to strong Chinese demands for iron ore, coal and liquefied natural gas. Exports to China have also helped Australia escape the worst effects of the global financial crisis. Main Chinese exports to Australia include clothing, telecommunications equipment/components, computers, toys, prams and sporting equipment. According to the Australian Bureau of Statistics, the bilateral trade volume between China and Australia amounted to US$158.97 billion in 2019, or an increase of 10.9 per cent year on year. In sum, China remains not only Australia's largest trading partner, but also its largest export destination and largest import source country. [End Page 50]
Trade Summary and Further Investigation
Based on the evidence presented in this section, trade and political disputes are becoming increasingly connected in China's relations with its main trading partners. To further assess the impacts of relevant changes in political relations and international trade, this study employs both the gravity model of trade and lagged vector autoregression (VAR) model. Unlike past investigations, the authors used quarterly data instead of annual and monthly data, and also added a variable that influences leadership governance. The following section provides an overview of the current literature on this approach.
LITERATURE REVIEW
Economic Size
Under conditions of increasing returns, Krugman19 posits that countries with larger sales of some products at home will tend to have higher sales of those same products abroad. Simwaka's20 examination of trade flows in Malawi in 2006 shows economy size (i.e. gross domestic product [GDP] of importing country) has a positive impact on bilateral trade. A 2010 study by Wang et al.21 finds that the levels and similarities of market size were positively related to bilateral trade volume.
Geographical Distance
Simwaka22 shows that transportation costs are indicative of geographical distance, which has a negative influence on Malawi trade. Wang et al.23 also investigated the impact of geographical distance between trading partners and the findings demonstrate that distance has negative impacts on trade flows in OECD countries.
Economic Distance
Linder24 points out that greater economic distances between two trading countries result in higher transaction costs due to issues such as transportation needs, which naturally increase with distance. This may negatively impact trade flows. Research by [End Page 51] Le25 examines the effects of relative economic distance (RED) between countries with bilateral foreign trade and FDI in Vietnam. Le used the difference in per capita GDP as a proxy for RED between Vietnam and its partner countries, and found that economic distance had a significantly positive influence on the national bilateral trade and FDI inflows.
Conflict and International Trade
Several studies have focused on the connection between conflict and international trade. Polachek26 adopted microeconomic theory to illustrate the plausibility of a negative relationship between international trade and conflict by utilising 10-year, 30-country cross-sectional data. Pollins,27 in a later study, demonstrates that trade flows were significantly influenced by large-scale international amity and enmity. Gowa and Mansfield's28 work has shown that alliances had direct, statistically significant and large impacts on bilateral trade flows, with bipolar relationships being stronger than multipolar relationships. Fuchs and Klann29 recognised that countries that officially received the Dalai Lama at the highest political levels were punished through reductions in their exports to China.30 Marano, Cuervo-Cazurra and Kwok31 analysed how intrastate conflicts had larger negative impacts on trade when compared to interstate conflicts, and that conflicts which arose in exporting countries had greater negative impacts on trade than those that arose in importing countries. Gawarkiewicz and Tang32 used a gravity model to estimate the influence of political tension on trade and capital flows in ASEAN Plus Three countries, and found that a one per cent rise in tension scores resulted in a 0.05 per cent decline in trade. At the government level, Temurov and Kilicaslan33 discovered that diplomatic conflicts had no significant [End Page 52] impacts on trade, but that security conflicts negatively affected trade relations. Their study also found that geographical distance reduced the negative impacts of conflict on trade. A 2017 study by Du et al.34 investigated the effects of political relations on trade using the gravity model, with empirical results showing that political shocks were short-lived. Notably, although political shocks influence exports to China, the effects tend to largely dissipate within two months. Lin et al.35 analysed the impacts of Africa–China diplomatic visits on bilateral trade and found that state visits from African leaders could increase official aid and Chinese exports to Africa in capital-intensive manufacturing goods. In a case study of China and its 10 biggest Asian trading neighbours, Meng36 analysed how political tensions impacted international trade patterns; the findings show that political tensions negatively impacted China's imports from neighbouring trading partners, but had no impacts on exports. This thesis also reveals that joining the same regional trade agreement with China could decrease the negative impacts of political tensions on trade flows. Oncel and Liapina,37 examining the long-term determinants of the trade balance between Turkey and Russia, confirm the existence of an enduring negative relationship between real effective exchange rates, foreign policy crises and the overall trade balance. Working from a regional perspective, Li38 analyses the impacts of political relations between South Korea and Shandong province, and proves that there are benefits stemming from mutually increased exports. Focusing on relations between China and Japan, Li and Liu's39 study of the territorial conflicts related to the Diaoyu/Senkaku Islands indicates that the nationalisation imbroglio had negatively affected the amount of Japanese exports to China, especially those of automobiles and cameras. In Su et al.'s40 investigation of the dynamic causal relationship between Sino–US political conflicts and bilateral trade, the findings indicate the presence of various modes of interaction; these two variables were mutually affected, demonstrating that bilateral trade significantly reduced political conflict. [End Page 53]
DATA AND EMPIRICAL METHODOLOGY
Data
The GMM model is a superior approach that has wide application throughout the econometrics field. With regard to basic equations, for example, there is no need for the number of equations to be equal to the number of estimated parameters, and this also increases the convenience in dealing with problems that violate basic assumptions. In the current article, based on data obtained between 1990 and 2019, the authors employ the GMM model to analyse how conflicts impacted international trade flows.
If the natural duration of political shocks is shorter than the frequency with which it is measured, then a spurious causality may be imposed on the empirical relationship. In this context, the method for correcting temporal or sampling bias entails the usage of higher frequency data to test the hypothesis that political relations affect trade.41 In this panel analysis, the use of quarterly data spanning 30 years greatly expanded the number of observations when compared to the use of annual data, thus compensating for the limited number of countries available in the database. This article primarily adopts data concerning political relations between China and other countries compiled by the Institute of International Relations at Tsinghua University.42 Beginning in 1950, the database quantifies China's bilateral relations with several countries on a scale of −9 to 9, with bilateral political relations thus categorised based on six levels ("rivalry", "tense", "bad", "normal", "good", "friendly"); higher scores indicate better political relationships between two countries (similar to Goldstein scores43). Table 1 gives descriptive statistics for the investigated variables.
Descriptive Statistics for Variable Measures
Model
This study investigates the relationships between total trade volume/exports/imports and political relations as well as a few relevant economic factors between China and its five trading partners from 1990 to 2019. This subsection describes the econometric models—the trade gravity model and VAR model.
Study 1: The effects of political relations on total trade between China and its major trading partners
where
ΔInTradec,j,t is the natural logarithmic difference in the total trade volume between China and trading partner j in quarter t;
ΔRelationsc,j,t−q represents the political relations between China and country j in quarter t-q; ΔInDisgdpc,j,t, the economic distance between China and country j and the natural logarithmic difference between the per capita GDP of China and its trading partners in quarter t;
ΔInPopc,t, the natural logarithmic difference (China's population in quarter t);
ΔInPopj,t, the natural logarithmic difference (the population of China's trading partner j in quarter t);
ΔInGDPc,t, the natural logarithmic difference (China's GDP in quarter t); [End Page 55]
ΔInGDPj,t, the natural logarithmic difference (the GDP of China's trading partner j in quarter t);
Δerj,t, the natural logarithmic difference (real effective exchange rates based on the manufacturing consumer price index of country j in quarter t); and
Powerc,t, the government in power over the past three decades in China (dummy variables).
Study 2: The effects of political relations on China's exports to its major trading partners
where
ΔInExpc,j,t is the natural logarithmic difference in export volumes between China and trading partner j in quarter t;
ΔRelationsc,j,t-q, the political relations between China and country j in quarters t–q;
ΔInDisgdpc,j,t, the economic distance between China and country j and the natural logarithmic difference between the per capita GDPs of China and its trading partners in quarter t;
ΔInPopc,t, the natural logarithmic difference (the population of China's trading partner j in quarter t);
ΔInGDPj,t, the natural logarithmic difference (the GDP of China's trading partner j in quarter t);
Δerj,t, the natural logarithmic difference (real effective exchange rates based on the manufacturing consumer price index of country j in quarter t);
Powerc,t, the government in power over the past three decades in China (dummy variables).
Study 3: The effects of political relations on exports to China from its major trading partners
[End Page 56]
where
ΔInImpc,j,t is the natural logarithmic difference in import volumes between China and trading partner j in quarter t;
ΔRelationsc,j,t-q, the political relations between China and country j in quarters t-q;
InDisgdpc,j,t, the economic distance between China and country j and the natural logarithmic difference between the per capita GDPs of China and its trading partners in quarter t;
ΔInPopc,t, the natural logarithmic difference (China's population in quarter t);
ΔInGDPc,t, the natural logarithmic difference (China's GDP in quarter t);
Δerj,t, the natural logarithmic difference (real effective exchange rates based on the manufacturing consumer price index of country j in quarter t);
Powerc,t, the government in power over the past three decades (dummy variables).
RESULTS AND DISCUSSION
Panel Unit Root Test
To assess data stationarity, the authors conducted the Augmented Dickey-Fuller (ADF) test.44 Table 2 shows the results of the unit root test. In this case, all variables rejected the null hypothesis (non-stationarity) at the first difference. All variables were stable.
![Table 2. U R T (A D-F [ADF] T)](/article/904726/image/tab02?format=thumb)
Unit Root Test (Augmented Dickey-Fuller [ADF] Test)
Optimal Lag Order Analysis
Optimal lag must be determined before establishing a VAR model. In this article, the authors established optimal lag(p) using the six criteria reported by Sims,45 including the sequential modified likelihood-ratio (LR) test statistics, the final prediction error (FPE), the Akaike information criterion (AIC), the Schwarz information criterion (SC) and the Hannan-Quinn information criterion (HQ). Table 3 shows the results of the model lag selection. The authors used a lag of 1, which is recommended as the optimal lag based the smallest point for the LR, FPE, AIC, SC and HQ criteria.
Optimal Lag Test Results
The Granger causality test was conducted to assess causality between variables, as shown in Table 4. This can help to predict a causal relationship between the two variables.
To eliminate time aggregation bias, the authors used quarterly data to verify the results, showing how political relations had affected trade (Tables 5 and 6). In general, the regression analysis results of both the GMM and VAR models showed that political relations impacted total trade volumes, had one-quarter lagged (three months) influences on China's exports and immediately impacted imports. These findings were not consistent with a study by Meng,46 who stated that political tensions had negatively impacted China's imports from neighbouring trading partners, but did not have any impact on exports. Analysing the GMM model results (Table 5), if political relations are strengthened by one per cent, then the trade volumes of China's trading partners increase by 0.03 per cent,47 exports to trading partners increase by 0.07 per cent, and [End Page 58] imports from trading partners increase by 0.04 per cent. If the population of trading partners increases by one per cent, the total trade volumes with trading partners increase by 10 per cent.
Granger Causality Test
According to regressions (3) and (4), if the real exchange rate increases by one per cent, then China's total trade volumes and exports increase by 0.3 per cent and 0.4 per cent, respectively (Table 5). Upon including dummy variables (governments over 30 years), the political influence coefficient of total trade in Chinese President Xi Jinping's tenure was about 1.7 times that of Jiang Zemin's tenure. The gap between the two leaders, Xi and Jiang, is about 1.4 times that of imports. Meanwhile, the political influence coefficient of total trade during Xi Jinping's rule was about 1.5 times that of Hu Jintao's rule. The gap between the two leaders, Xi and Hu, is about 1.4 times that of imports.
Table 6 displays the VAR model results. The variation coefficients were similar to those computed by the GMM model. If political relations are strengthened by one per cent, total trade volumes with China's trading partners increase by 0.04 per cent and imports from trading partners will increase by 0.05 per cent. Exports with trading partners increase by 0.08 per cent; this can be explained by the fact that China is an export-oriented country. If the population of trading partners increases by one per cent, the total trade volume with trading partners then increases by 1.5 per cent. Regressions (3) and (4) also show that if the real exchange rate increases by one per cent, China's total trade volumes and exports then increase by 0.3 per cent and 0.4 per cent, respectively (Table 6). This is consistent with the theory that the depreciation of a domestic currency improves a country's export flows. After adding dummy variables (governments over 30 years) to the VAR model, the political influence coefficient of total trade during Xi Jinping's term was about 1.8 times that of Jiang Zemin's rule. The gap between the two leaders, Xi and Jiang, is about 1.5 times that of imports. Meanwhile, the political influence coefficient of total trade during Xi Jinping's term is about 1.6 times that of Hu Jintao's rule. The gap between the two leaders, Xi and Hu, is about 1.4 times that of imports. [End Page 59]
Results of GMM Regression
[End Page 60]
VAR Model Regression Results
[End Page 61]
CONCLUSION
In the context of continually changing political and economic environments, there is a pressing need to investigate how political relationships influence economics and trade. Based on quantified data regarding political relationships, this article explores how political relationships have impacted imports, exports and trade volumes. In contrast to previous research, this article considers the recent "rise of great power" in China by utilising the rule of the three most recent Chinese leaders as an influencing factor. China's recent rise to prominence is the result of several factors that emerged once the nation chose to focus on production aimed at the levels of global capitalism during the 1980s. After 2010, China's foreign policy strategy made a shift from "keeping a low profile" (taoguang yanghui)48 to more proactive and assertive stances.49 As expected, the "rise of great power" has endowed Chinese President Xi Jinping with more political influence than that held by his immediate predecessors. Specifically, Xi Jinping holds influential power that is 1.4 to 1.8 times greater than Jiang Zemin's, and 1.4 to 1.6 times greater than that held by Hu Jintao. As China is an export-oriented country, political relations have had negative and lagged influences on exports, but instantaneous impacts on imports. In this context, the impacts of political relations on exports become more obvious three months after relations deteriorated.
In May 2015, Chinese Premier Li Keqiang issued a national strategic plan known as "Made in China 2025", which has increased the frequency of exchanges between China and other countries. However, inevitable conflicts have had severe negative impacts on bilateral trade. In the future, political relations between China and its trading partners will have enduring, rather than temporary, influences on trade. Peaceful international dialogue may curtail the negative impacts of political factors on trade, thus promoting peaceful coexistence. Faced with severe economic conditions, China and other nations should work to strengthen trade cooperation while seeking common economic interests. These measures should further improve political relations.
Due to the limitations of political relations data, this article selects only five of China's trading partners as research subjects to analyse the impact of political relations on trade. The authors believe that the research will yield findings that are more credible if a wider range of national data is available. For future research, they also propose to update international relations data and probably select more target countries for more detailed investigation. When analysing how political relations affect trade, differentiating countries by region and level of development would present interesting findings. The authors also propose to consider the impact of political relations on various industries to add new dimensions for future research. [End Page 62]
Wang Jing Jing (wangjingjing@naver.com) is a Researcher at the Department of International Trade in Dankook University, South Korea. She obtained her PhD from the Department of International Trade in Dankook University. Her research interests cover international trade and politics.
Zhou Xuan (xuan819@naver.com) is a PhD candidate at the Department of International Trade in Dankook University. Her research focuses on international trade.
Choi Chang Hwan (hub21@dankook.ac.kr, corresponding author) is a Professor at the Department of International Trade in Dankook University. His expertise lies in interdisciplinary research into the intricate relationship between legal and economic factors.
ACKNOWLEDGEMENTS
The authors extend their sincere appreciation to the anonymous reviewers for their constructive comments, which have greatly improved the quality of their work.
Footnotes
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4. Christina L. Davis, Andreas Fuchs and Kristina Johnson, "State Control and the Effects of Foreign Relations on Bilateral Trade", Journal of Conflict Resolution 63, no. 2 (2019): 405–38; Raymond Fisman, Yasushi Hamao and Wang Yongxiang, "Nationalism and Economic Exchange: Evidence from Shocks to Sino–Japanese Relations", The Review of Financial Studies 27, no. 9 (2014): 2626–60; Lin Faqin, Yan Wenshou and Wang Xiaosong, "The Impact of Africa–China's Diplomatic Visits on Bilateral Trade", Scottish Journal of Political Economy 64, no. 3 (2017): 310–26; Du et al., "Bilateral Trade and Shocks in Political Relations".
5. Larry Chavis and Peter Leslie, "Consumer Boycotts: The Impact of the Iraq War on French Wine Sales in the U.S.", Quantitative Marketing and Economics 7, no. 1 (2009): 37–67; Kilian Heilmann, "Does Political Conflict Hurt Trade? Evidence from Consumer Boycotts", Journal of International Economics 99, no. C (2016): 179–91.
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30. This "Dalai Lama effect" was observed only during the Hu Jintao era and disappeared two years after a meeting.
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47. All estimates of dependent variables are based on China.
48. Beijing has long followed a dictum "taoguang yanghui", which literally means to hide its ambitions and disguise its claws, laid down by Deng Xiaoping, the paramount leader who died in 1997.
49. Han Zhen and Thaza V. Paul, "China's Rise and Balance of Power Politics", The Chinese Journal of International Politics 13, no. 1 (2020): 1–26.
