Do political relations affect exports to China? Evidence from the ‘Quad’

Abstract

This paper quantifies the effects of shocks in political relations on merchandise goods exports to China for the’Quad’ countries, namely Australia, India, Japan and the USA, between 1998 and 2018. Using a vector auto-regression approach, our estimates suggest that deteriorating political relations only have short- and long-run effects on India's aggregate export growth to China over this period; for Australia, Japan and the USA, there are none. A time-disaggregated analysis of 5-year sub-periods shows that long-term effects (lasting for up to 2 years) are significant for India and Japan for the sub-period 1998–2002, while in all other sub-periods there are no significant effects for any of the four countries. A product-disaggregated analysis of the top five exports for each of the Quad countries to China reveals that, while the effects of political relations on trade do vary by product type and country in the short term, there are no long-run effects of deteriorating political relations on any of these countries’ major exports to China.