Transforming East Asia: Regional Integration in a Trade War Era

Abstract

This paper evaluates the trade and welfare implications of further East Asian trade integration, through the signing of the China-Japan-Korea FTA, and continued trade tensions between the US and China. Our analysis uses a structural gravity approach to explore the effects of these cooperative and non-cooperative trade policies. Our key findings are: (i) for China, the FTA can compensate for continued trade tensions (ii) in terms of the FTA and for the members involved, reductions in tariffs are expected to lead to larger welfare gains compared to those from lower NTBs (iii) for the members involved, a deeper agreement will be more welfare enhancing. Overall, East Asian integration appears to be a more appealing prospect in light of tensions with the US.