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Computational Analysis of the Menu of US-Japan Trade Policies

  • Drusilla K. Brown
  • Kozo Kiyota
  • Robert M. Stern

We have used the Michigan Computable General Equilibrium (CGE) Model of World Production and Trade to calculate the aggregate welfare and sectoral employment effects of the menu of US-Japan trade policies. The menu of policies encompasses the various preferential US and Japan bilateral and regional free trade agreements (FTAs) negotiated and in process, unilateral removal of existing trade barriers and global (multilateral) free trade. The welfare impacts of the FTAs on the United States and Japan are shown to be rather small in absolute and relative terms. The sectoral employment effects are also generally small but vary across the individual sectors depending on the patterns of the bilateral liberalisation. The welfare effects on the FTA partner countries are mostly positive though generally small, but there are some indications of potentially disruptive employment shifts in some partner countries. There are indications of trade diversion and detrimental welfare effects on non-member countries for some of the FTAs analysed. In comparison to the welfare gains from the US and Japan bilateral FTAs, the gains from both unilateral trade liberalisation by the United States, Japan and the FTA partners, and from global (multilateral) free trade are shown to be rather substantial and more uniformly positive for all countries in the global trading system. The US and Japan FTAs are based on 'hub' and 'spoke' arrangements. We show that the spokes emanate out in different and often overlapping directions, suggesting that the complex of bilateral FTAs may create distortions of the global trading system. Copyright 2006 The Authors Journal compilation 2006 Blackwell Publishing Ltd .

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Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 29 (2006)
Issue (Month): 6 (06)
Pages: 805-855

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Handle: RePEc:bla:worlde:v:29:y:2006:i:6:p:805-855
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  1. Brown, D.K. & Stern, R.M., 1988. "U.S.-Canada Bilateral Tariff Elimination: The Role Of Product Differentiation And Market Structure," Working Papers 227, Research Seminar in International Economics, University of Michigan.
  2. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2000. "Computational Analysis of the Accession of Chile to the NAFTA and Western Hemisphere Integration," The World Economy, Wiley Blackwell, vol. 23(2), pages 145-174, 02.
  3. Warwick McKibbin & Jong-Wha Lee & Inkyo Cheong, 2004. "A dynamic analysis of the Korea-Japan free trade area: simulations with the G-cubed Asia-Pacific model," International Economic Journal, Taylor & Francis Journals, vol. 18(1), pages 3-32.
  4. Drusilla K. Brown & Alan V. Deardorff & Robert M Stern, 2001. "CGE Modeling and Analysis of Multilateral and Regional Negotiating Options," Working Papers 468, Research Seminar in International Economics, University of Michigan.
  5. Francois, Joseph & van Meijl, Hans & van Tongeren, Frank, 2003. "Trade Liberalization and Developing Countries Under the Doha Round," CEPR Discussion Papers 4032, C.E.P.R. Discussion Papers.
  6. W. Hertel, Thomas, 2001. "Dynamic Effects of the “New Age” Free Trade Agreement between Japan and Singapore," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 16, pages 446-484.
  7. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2003. "Multilateral, Regional and Bilateral Trade-Policy Options for the United States and Japan," The World Economy, Wiley Blackwell, vol. 26(6), pages 803-828, 06.
  8. repec:dgr:uvatin:20030060 is not listed on IDEAS
  9. James Levinsohn & Margaret McMillan, 2004. "Computational Analysis of the U.S FTAs with Central America, Australia, And Morocco," Working Papers 526, Research Seminar in International Economics, University of Michigan.
  10. Brown, D.K. & Stern, R.M., 1988. "Computable General Equilibrium Estimates Of The Gains From U.S.-Canadian Trade Liberalization," Working Papers 220, Research Seminar in International Economics, University of Michigan.
  11. Thomas W. Hertel, 2000. "Potential gains from reducing trade barriers in manufacturing, services and agriculture," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 77-104.
  12. Harrison, W Jill & Pearson, K R, 1996. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Computational Economics, Society for Computational Economics, vol. 9(2), pages 83-127, May.
  13. Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2005. "Computational Analysis of the US FTAs with Central America, Australia and Morocco," The World Economy, Wiley Blackwell, vol. 28(10), pages 1441-1490, October.
  14. repec:dgr:uvatin:2003060 is not listed on IDEAS
  15. Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2005. "Computational Analysis of the Free Trade Area of the Americas (FTAA)," Working Papers 528, Research Seminar in International Economics, University of Michigan.
  16. Hertel, Thomas W. & Will Martin, 1999. "Would Developing Countries Gain from Inclusion of Manufactures in the WTO Negotiations?," GTAP Working Papers 397, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  17. Drusilla K. Brown & Kozo Kiyota & Robert M. Stern, 2004. "Computational Analysis of the U.S FTA with the Southern African Customs Union (SACU)," Working Papers 514, Research Seminar in International Economics, University of Michigan.
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