The Environmental and Economic Effects of Trade Liberalization: A Computable General Equilibrium Modeling Approach

The purpose of this paper is to analyze the environmental and economic effects of trade liberalization, we use a Computable general equilibrium (CGE) model to examine the impact of a trade bloc consisting of the US and China. We find some macro-economic variables such as gross domestic product (GDP), disposable income, import, export, production and consumption increases for two members of the trade bloc when tariffs are eliminated. These gains appear to accrue more to China. However, we also find environmental quality will increase in US but decrease in China. The trade liberalization policy thus bring higher economic prosperity but at the cost of environmental degradation to China. This is an issue of major concern for the future of the China.