Quantifying the Global Value Chain and Welfare Effects of RCEP: Implications for the U.S.-China Trade Frictions

This paper quantifies the impact of the Regional Comprehensive Economic Partnership (RCEP) on global value chains (GVCs) and welfare. Using a multi-country, multi-sector general equilibrium model with global input-output linkages, we distinguish between tariffs on intermediate and final goods to capture the granular trade-cost dynamics of RCEP’s implementation. Our results show that RCEP significantly bolsters intra-regional trade and enhances complex GVC participation, although patterns of integration diverge: China and Australia expand primarily through forward linkages, while Japan, South Korea, and ASEAN members integrate more deeply through backward linkages. Welfare decomposition reveals that more than half of the total gains are driven by indirect channels, specifically intermediate-goods trade and sectoral linkages, rather than direct final-goods liberalization. Counterfactual simulations further demonstrate that RCEP serves as a critical strategic buffer against global trade disruptions. While the U.S.-China trade war and the emerging “Trump 2.0” reciprocal tariff regimes pose substantial risks, deeper regional integration and services liberalization can significantly mitigate these adverse welfare shocks. These findings underscore that RCEP functions as a strategic anchor for regional value chains, playing a pivotal role in bolstering supply-chain resilience against the structural shifts and heightened uncertainties of the global trade environment.