Working Paper: NBER ID: w20425
Authors: Chunding Li; Jing Wang; John Whalley
Abstract: This paper explores the potential impacts on both China and other major countries of possible mega trade deals. These include the Trans-Pacific Partnership (TPP), the Regional Comprehensive Economic Partnership (RCEP), and various blocked deals. We use a numerical 13-country global general equilibrium model with trade costs to investigate both tariff and non-tariff effects, and include inside money to endogenously determine imports on the trade imbalance. Trade costs are calculated using a method based on gravity equations. Simulation results reveal that all FTA participation countries will gain but all FTA non-participation countries will lose. If non-tariff barriers are reduced more, the impacts will be larger. All effects to China on welfare, trade, export and import are positive. Comparatively China-TPP and RCEP will yield the highest welfare outcomes for the US in our model, China-Japan-Korea FTA will generate the second highest welfare outcome, and China-US FTA will generate the third highest welfare outcome. For the US, China-TPP FTA will generate the highest welfare outcome. For the EU, all China involved mega deals have negative impacts except China-US FTA. For Japan, RCEP will generate the highest welfare outcome. For both Korea and India, RCEP will generate the highest welfare outcome.
Keywords: mega trade deals; China; general equilibrium model; trade costs; RCEP; TPP
JEL Codes: C68; F47; F53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduction of non-tariff barriers (F13) | Economic benefits for China (F69) |
| Participation in mega trade deals (F13) | Positive outcomes for China (F69) |
| All mega deal member countries (F15) | Gain (F62) |
| Non-member countries (F53) | Experience losses (J17) |
| RCEP and TPP (F15) | Highest welfare outcomes for China (D69) |
| CJK FTA and China-U.S. FTA (F15) | Substantial benefits for China (F14) |
| All China-involved mega deals (F19) | Negative impacts, except for China-U.S. FTA (F69) |