Subsidies Increase or Tariffs Reduction? A Study on the Economic and Welfare Effects of China’s Policies to Stabilize the “Pig Cycle”
DOI:
https://doi.org/10.53469/ijomsr.2025.08(08).11Keywords:
China’s pork prices, Production subsidy policy, Tariff reduction, GSIM model, Welfare effectsAbstract
To stabilize the “pig cycle” and ensure the supply and consumption of pork, the China has implemented a series of policy measures in recent years. However, whether these policies have effectively mitigated the “pig cycle” and how to accurately measure their economic and welfare impacts remain underexplored in systematic research. This paper uses a computable partial equilibrium model of monopolistic competition (GSIM model) and draws on global data on pork production, trade, and consumption in 2019 to empirically examine the economic, welfare, and environmental impacts of China’s pork production subsidy policy and frozen pork import tariff policy from a global perspective and industry level. The simulation results show the following: First, there are significant differences in output and price effects between subsidy and tariff policies. A 1% production subsidy for live pigs will increase China’s annual pork output by 0.22%, raise producer prices by 0.67%, lower consumer prices by 0.3%, and boost domestic sales by 0.22%. In contrast, a 1% reduction in frozen pork import tariffs will reduce China’s annual pork output by 0.38%, lower both producer and consumer prices by 0.11%, and decrease domestic sales by 0.05%. Second, subsidies generate higher economic welfare than tariffs. Specifically, the live pig production subsidy policy will increase China’s annual producer surplus by $6.85 billion, consumer surplus by $3.14 billion, and net social welfare by $9.93 billion. Meanwhile, a reduction in frozen pork import tariffs will reduce China’s annual producer surplus by $460 million but increase consumer surplus by $600 million, resulting in a total annual increase in social welfare of $40 million. Third, subsidies lead to more greenhouse gas emissions than tariffs. Simulation results indicate that production subsidies will increase China’s annual greenhouse gas emissions by 69.87 CO₂ equivalents, while a reduction in import tariffs will reduce annual greenhouse gas emissions by 4.73 CO₂ equivalents. Therefore, for the purposes of mitigating the pig cycle and protecting the atmospheric environment, tariff policies are superior to subsidy policies. Based on these findings, this paper proposes recommendations for the cautious use of production subsidies. The research not only provides a theoretical basis for China’s policy orientation in stabilizing the pig cycle but also offers analytical ideas and tools for experts and scholars to evaluate the welfare effects of economic policies.
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