A Trade and Welfare Analysis of Tariff Changes Within the TPP

Abstract

Abstract This paper examines the effects of the Trans-Pacific Partnership (TPP) tariff reductions on trade flows and welfare of the TPP members and nonmembers following the Caliendo and Parro (2015) method. We use comprehensive sectoral data on 39 countries and the rest of the world, including those in the Association of Southeast Asian Nations (ASEAN) and the Organization for Economic Co-operation and Development (OECD). Our results show that many TPP nonmembers along with the TPP members gain from the TPP tariff reductions, suggesting the existence of a positive externality, with the welfare gains mainly arising from the changes in the terms of trade. Our analysis also shows that the TPP members increase their imports from other TPP members and decrease from non-TPP members, but the trade creation effects exceed the trade diversion effects. Our calibration results under various assumptions of the model emphasize the role of multiple sectors and sectoral linkages in the welfare analysis of the TPP tariff reductions.