The Belt and Road Initiative in times of global uncertainty: A trade policy perspective

While all Belt and Road Initiative (BRI) trade routes end in Europe, Europeans remain deeply divided on the issue. There is little appetite for turning away investment but there is an identified need for the strategic oversight and planning of inward and outward investment, which underpins market access. The absence of large-scale state ownership across Europe limits the tools available. One approach to tackling this issue is in the form of the EU-China Comprehensive Agreement on Investment (CAI), with the potential of a China-EU FTA to follow. Sceptical observers may note that while the EU has been attempting to broker a deal that provides EU companies with the opportunity of more easily making investments in China, substantial Chinese investment has already been taking place in the EU via Bilateral Investment Treaties (BITs) with individual member states. These largely outdated agreements do not grant the EU equivalent access to the Chinese market. This is part of the motivation for the new investment screening mechanism that came into operation last October and further legislation (currently in draft form) concerning state aid from non-EU countries.

Unlike trade and investment arrangements, the BRI is not underpinned by an agreement outlining detailed rules. There are few empirical economic assessments of the BRI due to the opaqueness of the policy. Our recent research contributes to this small literature by quantifying the trade and welfare impacts of the BRI and benchmarking against other trade policy changes such as the US-China trade war. We also simulate the impact of a China-EU FTA as well as the combined effect of the FTA alongside the BRI. While our main results consider a deep China-EU FTA, for robustness we explore different types of trade agreements. Therefore, the simulations conducted provide an important illustration of the potential trade-offs facing policy makers.

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Jackson, K. and O. Shepotylo (2021). The Belt and Road Initiative in times of global uncertainty: A trade policy perspective. China Dialogues (London School of Economics) . 24 Jun.

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