Optimal governance strategies for air pollution embodied in Sino-US trade: Evidence from a differential game model

The discussions between countries on trade inequality and ecological inequality have become increasingly heated, making cooperation on air pollution governance a priority. Based on the global multiregional input‒output (MRIO) model for calculating Sino-US trade-embodied air pollution (TEAP), an economic compensation mechanism is introduced into a differential game model. The main conclusions are as follows: (1) In bilateral Sino-US trade, the TEAP transferred from the United States to China is 6.85 times that transferred from China to the United States, showing serious ecological inequality. (2) The optimal TEAP emissions are influenced only by domestic factors in the noncooperative game, while they are jointly controlled by factors from both countries in the cooperative game. The optimal compensation coefficient is also influenced by factors from the two countries in the noncooperative game. In addition, the optimal TEAP stock and optimal investment stock are positively correlated with the initial stock under the two game scenarios. (3) Through numerical simulation, compared with the noncooperative game with economic compensation, the cooperative game without economic compensation can significantly reduce the optimal TEAP emissions and optimal TEAP stock; however, this reduction requires more governance investment. Consequently, China and the United States should comprehensively consider the advantages and disadvantages of the two governance strategies to maximize their overall economic benefits on the basis of basic fairness. •The Eora database and the MRIO are used to calculate the air pollutants embodied in Sino-US trade.•The TEAP is applied into the numerical analysis to exploring the optimal governance strategies.•The economic compensation mechanism is incorporated into the governance.•Consider the joint investment scenario between China and the United States.•Evaluate the governance effectiveness of economic compensation mechanisms.