The Effects of a China-US Free Trade and Investment Agreement

Abstract

Neither of the major negotiations underway in the Asia-Pacific region, the Regional Comprehensive Economic Partnership and the Trans-Pacific Partnership, includes both China and the United States. By failing to connect these economies, these agreements would leave much of the economic and political gains from Asia-Pacific economic integration unexploited. A China-US free trade and investment agreement, although not likely to be concluded soon, would address this gap and offers a range of policy options for the two economies. This paper uses a state-of-the-art computable general equilibrium model to estimate the benefits and adjustment implications of such an effort and compares them to the effects of the current smaller regional initiatives.

Keywords: China-US trade, US trade policy, free trade areas, Asia-Pacific economic integration

JEL Classification: F12, F13, F14, F15, F17, F53