Time-varying impact of renewable energy consumption on US-China trade flows: The role of climate policy stringency

The global shift toward renewable energy is reshaping economic relationships. However, its impact on bilateral trade remains underexplored, particularly in major economies such as the US and China. As the world's largest trading partners and carbon emitters, changes in energy strategies and climate policies have significant consequences for global trade dynamics. This study explores the time-varying effects of renewable energy consumption on bilateral trade between the US and China, emphasizing the role of climate policy stringency. While much of the existing literature assumes a stable relationship between trade and renewable energy, recent regulatory developments-such as the rollback of environmental protections in the United States under the Trump administration and China's ambitious renewable energy commitments outlined in its 14th Five-Year Plan-highlight the necessity for a more realistic, dynamic analytical framework. Drawing on industry-level monthly data from January 1996 to September 2023, we apply a time-varying threshold regression kink model to capture nonlinearities and structural shifts in the trade-renewable energy nexus. Our findings reveal that increased renewable energy consumption positively influences US imports from China while exerting downward pressure on US exports to China. Importantly, these effects are contingent upon the prevailing level of climate policy stringency, highlighting its role as a key moderating variable. Furthermore, we uncover substantial heterogeneity in renewable energy thresholds across industries, indicating sector-specific sensitivities. These findings emphasize the strategic role of environmental policy in shaping bilateral trade patterns and underscore the need to align trade strategies with sustainability goals.