Measuring the Potential Economic Impact of a Japan–US Free Trade Agreement: Can It Enable the US to Eliminate Its Trade Deficit in Goods with Japan?

Abstract

Japan and the US are two major global trading partners that have at times been at odds regarding each other’s international trade policies. In particular, the ongoing US trade deficit in goods with Japan has been one of the primary disputes between Japan and the US. However, the recent withdrawal of the US from the Trans-Pacific Partnership (TPP) sent a clear signal that the US would take a new approach to international trade issues and has potentially paved the way for a bilateral free trade agreement (FTA) with the remaining TPP countries, including Japan. This paper contributes to the debate on the potential economic impact of a Japan–US FTA (JUFTA) by evaluating whether it could enable the US to eliminate its trade deficit in goods with Japan. To do this, we measure the potential impact of a JUFTA using a dynamic Global Trade Analysis Project (GTAP) model. We find that a JUFTA is unlikely to enable the US to eliminate its trade deficit in goods with Japan, although the deficit will certainly decrease as a result.

Keywords

• free trade agreement
• trade deficit in goods
• gtap model