Asian Trade Integration Policy Brief: Tariff Reductions

The Asian Trade Integration policy brief, developed collaboratively by the Australian National University, NITI Aayog and the Centre for Strategic and International Studies, examines the economic impacts of expanded multilateral agreements in Asia. The study utilises computable general equilibrium (CGE) modelling to evaluate the economic impact of tariff reductions generated by China, Indonesia and the United States joining the CPTPP agreement and of India acceding to RCEP. Amid growing scepticism of globalisation and increasing geoeconomic fragmentation, quantitative economic modelling plays a critical role in providing impartial analysis to inform evidence-based policymaking and bolster confidence in the international trading system. Our economic modelling suggests that joining regional trading agreements typically benefits the countries that are acceding.

• India's accession to the RCEP is projected to boost its GDP by 0.41 per cent annually, with exports and imports rising by 6.15 per cent and 5.11 per cent, respectively, accompanied by increases in real wages and annual investment. However, joining RCEP may leave India with a negative Terms of Trade impact (0.3 per cent).

• Indonesia's entry into the CPTPP is expected to provide only a small positive GDP impact (0.1 per cent) but is expected to support middle-class job creation, with growth in textiles and light manufacturing, though a faster increase in imports compared to exports raises concerns about external balances.

• China's accession to the CPTPP would expand the agreement's share of global economic output from 18.5 per cent to 35.4 per cent, resulting in notable trade benefits for China alongside a modest growth in GDP (0.11 per cent).

• The United States's accession to the CPTPP would elevate the bloc's share of global output from 18.5 per cent to 44.8 per cent, significantly increasing trade flows and sectoral production while marginally reducing economic outcomes for non-members like China. US GDP would rise by just 0.1 per cent.

• In the optimistic scenario where China, the United States, and Taiwan all join the CPTPP, global trade could rise by 0.72 per cent, with Vietnam, Mexico and Indonesia emerging as the primary beneficiaries.

Our research is based on simplifying assumptions which may affect the overall results. For example, we assume that all tariffs are removed between all parties immediately as each nation accedes to trade agreements, while the timing in reality is often more complex. In this policy brief, we restrict attention to tariff measures, although we acknowledge that non-tariff measures also constitute an important component of modern plurilateral trade agreements. Nonetheless, this analysis lays the groundwork for further explorations of non-tariff measures, phased compliance and dynamic modelling pathways, offering critical tools for addressing the evolving challenges in trade and economic integration. The findings from this modelling exercise provide evidence-based insights for policymakers to understand the potential benefits from improved trade integration, navigate the complexities of national, regional, and sectoral trade, and to ensure the equitable distribution of its benefits.