Winners and Losers from China's Ascension in International Trade: a Structural Approach

Abstract

This paper employs a unified theoretical framework to estimate the effect of changes within China on the Brazilian and World's economy. Based on the Ricardian model of trade of Costinot et al. (2012), we perform counterfactuals exercises to analyze how industries in Brazil would have performed in the absence of the Chinese ascension. We discuss two main counterfactual exercises. First, we model productivity growth in China as the main lever by which Chinese supply and demand conditions evolve and affect economies worldwide. Second, we study how changes in composition of Chinese demand (taste) affects trade flows around the world. The two counterfactual exercises together suggest that changes in China's comparative advantage hampered manufacturing sectors abroad, in particular labor-intensive Brazilian manufacture producers. We find no support for the idea of a China taste shock driving demand towards raw materials. Our model suggests that if China triggered a commodity boom in the world, or at least in Brazil, this was driven mostly by increased income in China. And any changes in China's tastes over products contributed to moderate such boom. Specifically, our model indicates that the boom of soybeans cultivation in Brazil is due to changes in Brazilian comparative advantage paired with a level increase in demand for this product within China.