Trade and welfare effects of a potential free trade agreement between Japan and the United States

Timo Walter ()
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Timo Walter: University of Hohenheim

Review of World Economics (Weltwirtschaftliches Archiv), 2022, vol. 158, issue 4, No 8, 1199-1230

Abstract: Abstract This paper addresses the trade and welfare implications of a bilateral trade agreement between the U.S. and Japan. In 2019, the two countries signed a “stage one” trade agreement, with the U.S.-Japan Trade Agreement (USJTA) and the U.S.-Japan Digital Trade Agreement as two small trade agreements. A comprehensive bilateral free trade agreement (FTA) is currently under discussion between Washington and Tokyo, with the U.S. government alternatively joining the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP). Based on the theoretical model of Caliendo and Parro (Rev Econ Stud, 82(1):1–44, 2015) , I analyze the welfare gains of such a bilateral FTA in the style of Aichele et al. (Where is the value added? China’s WTO entry, trade and value chains, ZBW-Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz, 2014). I simulate trade and welfare impacts for the USJTA and the U.S.-Japan Digital Trade Agreement, as well as for a deep bilateral FTA. In addition, I examine and compare the welfare implications of the established CPTPP with the scenario of the U.S. or China joining CPTPP. My findings show that Japan’s welfare increases by 0.3% and U.S. welfare increases by 0.14% as a result of the FTA. Welfare of both countries would increase if the U.S. entered CPTPP, with Japanese welfare being even higher if China acceded to CPTPP.

Keywords: New quantitative trade model; Trade policy; Free trade agreement; Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (search for similar items in EconPapers)
JEL-codes: F13 F14 F17 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10290-022-00459-0

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