Winner and Loser the new FTAs and the

Winner and Loser (the new FTAs and the Trade War): Case Study of the Japanese Market Onur BIYIK

Contents Introduction GVC, FTAs, and Trade War Methodology Literature and Questions Result of the Analysis Conclusion Limitation

Main Idea Introduction • Study the new Japanese FTAs under the trade war • Focus on the FTAs and the trade war impact on welfare, GDP, and GVC • Compare each cases for selected countries • Code (subtotal) based on time schedule of the trade war and the FTAs

GVCs • Primarily, GVCs are a specific form of trade where a country uses import products to domestically consume or to use these products for its export products. That is, she imports and assembles parts and components to finalize its final goods which are domestically consumed or are exported to other countries. Framework for GVC-led Development Source: World Bank (WB) (2020)

Limited Japan-USA FTA Japan-EU EPA l a b o l g 30 % of mestic gross do t c u d o r p Agricultural and Industrial products 99% by the EU 97% by Japan agricultural products industrial products

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USA Tariff policy

Methodology Computable General Equilibrium (CGE), the GTAP 10 database

Literature • • The Trade War and Related Study The Japanese Export and Import Study (Urata, Kuwayama) The EU-Japan EPA Study (Grübler et al. , 2019; Felbermayr et, al. , 2019) The limited US-Japan Study

Questions Q 3 3 Which tariff reduction under the FTAs would give the most benefit to which countries? Q 1 Does the FTAs help reduce the negative effect of the trade war? 1 2 Q 2 Who is winner and loser?

GTAP Result Main Goal • Examine Japan-EU EPA and limited Japan-US FTA under the trade war. • The FTAs and the trade war impact on welfare and other variables Structure • The free trade agreement concept Japan-EU EPA (Felbermayr, et al. , 2019; Anderson and Martin, 2005) Limited Japan-USA FTA (Francois et al. , 2013) • The imposing tax concept China-USA friction -the trade war and global value chains (Bellora, C. , & Fontagné, L. , 2019).

Scenarios • (I) USA-China Friction total (US-CHFT) which provides USA’s tariff change for China (USATC) and Chinese tariff change for the USA (CTC), • (II) USA tariff change for the five regions (OR), • (III) Japan-EU FTA (EU-JFTA) which provides Japanese tariff elimination for the EU (J-EU) and the EU’s tariff elimination for Japan (EU-J) • (IV) limited USA-Japan FTA (USA-JFTA) which accounts for Japan tariff elimination for USA’s import goods (Japan. E) and USA tariff elimination for Japan’s goods (USAE).

Average Tariff of Goods Japan Sectoral Tariff Rate USA 1 Grains. Crops 2 Meat. Lstk 3 Extraction 4 Proc. Food 5 Text. Wapp 6 Cm. El. Op. Mnfc 7 EEMnfc 8 MEMnfc 9 Auto. Mnfc 10 Stl. Alm. Mnfc 11 Light. Mnfc 12 Heavy. Mnfc 13 Util_Cons 14 Trans. Comm 15 Oth. Services Import EU_28 22 35 0 10 7 0 0 2 1 1 0 0 0 USA 6 46 1 12 9 0 0 1 4 1 0 0 0 Export Subs. EU_28 0 0 0 0 EU_28 Export Subs. Japan Import Japan 0 0 0 0 3 2 4 5 5 3 6 5 5 6 0 0 0 USA Export Subs. Japan Import Japan 0 0 0 0 2 3 0 3 5 1 1 2 1 2 0 0 0 0 -1 -1 -1 0 0 0

Welfare Effects of Trade Liberalization by Region and by Policy, $U. S. Millions 5000 4000 us-chft or eu-jfta usa-jfta 3000 2000 1000 -2000 -3000 -4000 ld A Re st of W or SS A EN M Am er tin La So ut h. A sia ia As SE ia As st Ea ni a ea Oc 8 _2 EU ia ss ia In d Ru M ex ico ey rk Tu da na A in a Ch Ca -1000 US Ja p an 0

-50% -100% -150% Re A ld or W of st SS A EN M Am er sia h. A ut tin La So ia As SE sia a ni t. A Ea s ea japane Oc 8 eu-j _2 j-eu EU ia ss or Ru ia chinatc In d ico ex ey usatc M rk 50% Tu da na Ca a in Ch A US an Ja p Contribution to Welfare, Percentage in Total 100% usae 0%

Changes in GDP (in Percent) Due to the FTAs and the Trade War 0, 4 0, 3 us-chnft or eu-jfta usa-jfta 0, 2 0, 1 0 -0, 1 -0, 2 -0, 3 -0, 4 Japan USA China Canada Turkey Mexico India Russia EU_28 Oceania East. Asia SEAsia South. Asia Latin. Amer MENA SSA Restof. World

The Value-Added and the Substitution of the Demand (%) Value Added Japan USA Domestic Substitution EU_28 Japan USA Import Substitution EU_28 Japan USA EU_28 Rice -0. 4174 -0. 5911 -0. 1231 -0. 44 0 -0. 2 -2. 53 0. 94 0. 21 Grains. Crops -5. 2309 0. 8759 -0. 0038 -5. 45 0. 09 0. 18 5. 64 1. 49 0. 27 Meat. Lstk -20. 2439 1. 7488 1. 5202 -20. 61 0. 53 0. 36 45. 22 2. 06 0. 36 Extraction -0. 1764 -0. 0599 -0. 0434 -0. 2 -0. 05 -0. 02 0. 26 -0. 11 -0. 04 Proc. Food -0. 7164 0. 2016 0. 2557 -0. 82 0. 13 4. 1 0. 34 0. 18 Text. Wapp 0. 5172 0. 3585 0. 416 -1. 07 0. 49 0 1. 28 -0. 99 0. 16 -0. 0216 -0. 3778 -0. 3166 -0. 26 -0. 27 0. 8 0. 05 -0. 01 EEMnfc 0. 5275 -0. 3086 -0. 2999 0. 3 -0. 12 -0. 25 1. 37 -0. 08 -0. 01 MEMnfc 0. 6073 -0. 374 -0. 206 0. 29 -0. 22 -0. 16 1. 35 0. 52 0. 1 Auto. Mnfc 1. 7927 -0. 5176 -0. 3573 1. 14 -0. 17 -0. 41 1. 81 0. 03 0. 11 Stl. Alm. Mnfc 0. 1737 0. 1715 -0. 2251 0. 27 0. 4 -0. 18 1. 23 -2. 29 -0. 12 Light. Mnfc -0. 622 -0. 0243 0. 177 -0. 7 0. 01 2. 55 -0. 43 0. 09 Heavy. Mnfc 0. 3153 -0. 0977 -0. 0673 0. 02 0 -0. 08 0. 96 -0. 02 0. 06 Trade. Transp -0. 0357 -0. 0151 -0. 0099 -0. 01 0 0. 53 0. 12 0. 03 Util_Cons 0. 2564 -0. 0109 0. 026 0. 27 -0. 01 0. 03 0. 91 0. 27 0. 02 Trans. Comm 0. 1855 -0. 0002 -0. 0115 0. 19 0 0 0. 12 0. 13 0. 05 Oth. Services -0. 0238 0. 0071 -0. 0125 -0. 01 0. 55 0. 09 0. 01 Cm. El. Op. Mnfc

Sectoral Gain by GVC 20000 15000 1 Japan 2 USA 3 EU_28 10000 5000 0 -5000 -10000 -15000 1 Rice 2 3 Meat. Lstk 4 Extraction 5 Proc. Food 6 Text. Wapp 7 8 EEMnfc Grains. Crops Cm. El. Op. Mnfc 9 MEMnfc 10 Auto. Mnfc 11 12 Light. Mnfc 13 14 15 Util_Cons 16 17 Stl. Alm. Mnfc Heavy. Mnfc Trade. Transp Trans. Comm Oth. Services

Conclusion The Trade War Impact on the Japanese Market Winners and Losers Through the FTAs Sectoral Profit

Limitation • Domestic I/O, not an international I/O • Elimination of the Other FTAs (dynamic one) • Consider CPTPP and ASEAN • Role model of WTO which reduce the harm from FTA for other countries (question is how)

Thank You For Your Attention