Computational Analysis of the Menu of Us-Japan Trade Policies

51 Pages Posted: 19 May 2006

See all articles by Drusilla K. Brown

Drusilla K. Brown

Tufts University - Department of Economics

Kozo Kiyota

Keio University - Keio Economic Observatory

Robert M. Stern

University of Michigan at Ann Arbor - Department of Economics

Abstract

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.

Suggested Citation

Brown, Drusilla K. and Kiyota, Kozo and Stern, Robert M., Computational Analysis of the Menu of Us-Japan Trade Policies. The World Economy, Vol. 29, No. 6, pp. 805-855, June 2006. Available at SSRN: https://ssrn.com/abstract=903211 or http://dx.doi.org/10.1111/j.1467-9701.2006.00821.x

Drusilla K. Brown (Contact Author)

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-3096 (Phone)
617-627-3917 (Fax)

Kozo Kiyota

Keio University - Keio Economic Observatory ( email )

Mita 2-15-45, Minato-ku
Tokyo, 108-8345
Japan

Robert M. Stern

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
313-764-2373 (Phone)
313-763-9181 (Fax)

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