China and the Trans-Pacific Partnership: A Numerical Simulation Assessment of the Effects Involved

Chunding Li () and John Whalley

The World Economy, 2014, vol. 37, issue 2, 169-192

Abstract: type="main" xml:id="twec12123-abs-0001">

The Trans-Pacific Partnership (TPP) is a new negotiation on cross-border liberalisation of goods and service flows going beyond WTO disciplines and focused on issues such as regulation and border controls. This paper uses numerical simulation methods to assess the potential effects of a TPP agreement on China and also China's inclusion or exclusion on other countries. We use a numerical 11-country global general equilibrium model with trade costs and inside money. Trade costs are calculated using a method based on gravity equations. TPP barriers potentially removable are trade costs less tariffs. Simulation results reveal that China will be slightly hurt by TPP initiatives in welfare when China is out, but the total production and export will be increased. Other non-TPP countries will be mostly hurt in welfare, but member countries will mostly gain. If China takes part in TPP, she will significantly gain and increase other TPP countries' gain as well. The comparison of TPP effects and global free trade effects show that the positive effects of global free trade are stronger than TPP effects. Japan's joining TPP would be beneficial to both herself and most of other TPP countries, but which negative effects on China's welfare when out of TPP will increase further.

Date: 2014
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