Evaluating the impact of Northern Sea Route fuel costs on bilateral trade between China and the EU

The accelerated melting of the Arctic ice leads to the navigation of the Northern Sea Route (NSR) linking Asia and Europe, shortening transport channel between China and the European Union (EU). This has a significant impact on the China-EU bilateral trade which is analyzed in the present study. We present a framework based on a general equilibrium model for analyzing the impact of the NSR on the trade and the economies of China and the EU. Different fuel cost scenarios, consisting of fuel prices and sailing speeds on ice, are also considered. Specifically, we measure the changes in shipping costs between China and the EU, brought about by NSR navigation. These are used as a basis to quantify changes in transport technology. The Global Trade Analysis Project (GTAP) model is used to predict the trade and economic impacts. The results show that the NSR can save 0.98% in shipping costs and generate an increase in the exports of China and the EU in the order of 14,986 and 8,228 million US dollars, respectively. Among these exports, the mining industry shows the fastest growth, while the electronics industry experiences the largest increase in trade volume. Our findings reveal the potential of the NSR as an alternative route and its positive impact on bilateral trade between China and the EU. The results can provide a basis for shipping companies and governments to make decisions regarding the use of Arctic routes.