Analysis of the economic effects of China-Japan tariff concessions on Mechanical and electrical products under RCEP framework Based on the SMART model

: Based on the partial equilibrium model, this paper uses the SMART model to simulate the economic effects of different tariff concessions between China and Japan on both Chinese and Japanese Mechanical and electrical products under the RCEP framework. The results of the study show that China obtains larger trade effects relative to Japan after the RCEP comes into effect, because 91.3% of the Mechanical and electrical products exported from Japan to China have been liberalized before the RCEP comes into effect, and the Mechanical and electrical products exported from Japan to China are fully liberalized after the RCEP comes into effect, while China sets a transition period for tariff concessions and maintains a benchmark tariff for Mechanical and electrical products exported from Japan. China has not fully liberalized its exports of E&E products to China even after the transition period of tariff concessions. Therefore, if China fully liberalizes its E&E products to Japan based on reciprocal tariffs, China will gain more trade creation effect than trade diversion effect. Although a trade agreement would lower the tariff revenue of both countries, the economic welfare effect would be further enhanced. Finally, this paper proposes relevant policies and recommendations.


Introduction
China is the world's largest exporter of mechanical and electrical products, mechanical and electrical products are the mainstay of China's exports, China's mechanical and electrical products are mainly exported to the United States, the European Union and Japan and other countries, at the same time, China is also a large importer of mechanical and electrical products, Japan is the first source of China's imports of mechanical and electrical products. As the current form of the global epidemic remains severe, the world economic recovery and international trade growth prospects are still uncertain, the United States and Western countries will continue to suppress China, the external environment is more complex and severe and uncertain. In the current international situation, 15 countries, including China and Japan, signed the Regional Comprehensive Partnership Agreement (hereinafter referred to as RCEP) on November 15, 2020. China and Japan are the top two economies among RCEP member countries, and it is the first time to reach a bilateral tariff concession arrangement. The lack of FTAs had limited the economic and trade exchanges between China and Japan to a certain extent because no FTAs had been signed between China and Japan before. The signing of RCEP will bring a diversified, multi-channel and high-quality development platform to the economic and trade cooperation between China and Japan as a result of the commemorative activities related to the 50th anniversary of the normalization of diplomatic relations between China and Japan. At present, there are two main methods for measuring the economic effects of tariff concessions: ex ante estimation and ex post estimation methods. It is difficult to predict the economic effects of tariff concessions in advance through ex post estimation methods. Therefore, ex-ante partial equilibrium models are of great interest in the analysis of the economic effects of tariff concessions. Most scholars use ex ante estimated partial equilibrium models for estimating the economic effects of tariff concessions in specific industries, e.g., Subhash Jagdambe, Shaikh Mohd Mouzam (2019) examine the effects of the ASEAN-India FTA on specific product categories in India based on partial equilibrium models and assess the total trade effects of each commodity in the major ASEAN distribution among the major countries1 ; Basu Anwesha (2022) uses a partial equilibrium model to examine the impact of the entry into force of the India-EU FTA on India's dairy trade imports and concludes that the growth of India's dairy imports is mainly driven by trade creation rather than trade diversion2 . Li Xiangyang (2021) uses two scenarios to analyze the impact of trade frictions and free trade in citrus on citrus in China and the U.S. Applying a partial equilibrium SMART model, the conclusion shows that the U.S. can obtain more economic effects in the trade liberalization scenario compared to the U.S.-China trade friction scenario3 . Therefore, based on the known tariff concessions, this paper applies the SMART model to classify the main categories of Mechanical and electrical products and discusses in detail the trade effect, tariff effect and welfare effect of the tariff concessions of various types of Mechanical and electrical products between China and Japan respectively under the framework of RCEP. Considering that the Ministry of Commerce released the table of tariff concession commitments between China and Japan in the RCEP agreement using the Harmonized Commodity Description and Coding System (HS) to classify, based on the previous research results, this paper selects the nine chapters of products defined as Mechanical and electrical products in HS code 84-92 for the study.

Method selection and simulation setup
The partial equilibrium model allows visual analysis of price and supply-demand relationships in individual markets and individual products, and decomposes economic effects to the product level to reflect both shortand long-term economic effects; it is more up-to-date than the general equilibrium model, and changes in supply and demand can be calculated using a relatively limited number of formulas. The SMART model involves less data requirements (mainly involving trade volumes, tariff rates, behavioral parameters (elasticity coefficients) and other elements), and at the same time allows a high degree of disaggregation of commodity types, which can effectively avoid imputation bias. The Armington parameter is set to 1.5, the export supply elasticity is set to 99, and the tax reduction parameter is set to 100

Japanese tariff concessions
The Armington parameter is set to 1.5, the export supply elasticity is set to 99, and the tax reduction parameter is set to 100

Empirical Results and Analysis
Scenario 1 is designed to study the impact on the Chinese M&E industry caused by China no longer imposing tariffs on Japanese M&E products, and to predict the economic effects ofa further reduction in China's import tariff rate on Japanese M&E products to zero. Table 3 reflects the economic effects of China's E&E products to Japan under scenario three. The total effect of China's trade in E&E products will be raised to $8.56 billion, and the import growth rate is expected to reach 7.63%. Among them, the import growth rate of Mechanical and electrical products in chapters 87 and 89 increases significantly, reaching 24.27% and 24.28%, respectively. In addition, the trade creation effect exceeds the trade transfer effect by US$227 million, at US$4.394 billion and US$4.166 billion, respectively, but the trade creation effect of Mechanical and electrical products in chapters 85, 88 and 90 is still smaller than the trade transfer effect. In terms of tariff revenue and welfare effects, China's E&E products lose $10.068 billion in tariff revenue, while the welfare effect rises by $297 million. The higher the tariff reduction, the higher the decline in tariff revenue and the higher the total welfare increase, but the difference between the two also gradually widens.  Table 4 reflects the economic effects of Japan on Chinese E&E products. Since Japan only imposes tariffs on Chinese E&E products in chapters 85, 90 and 91, the economic effect of E&E products is only reflected in these three chapters. Due to the low average tariff of Japanese E&E products, the trade effect is only $33.374 million. Among them, the trade creation effect is 22.118 million USD and the trade transfer effect is 11.256 million USD; the expected import growth rate is only 0.04%, which is negligible compared with the total import of Japanese E&E products; the trade effect mainly comes from chapter 90, and the trade effect is 20.267 million USD; in terms of tariff revenue, Japan loses 53.338 million USD in tariff revenue, mainly from 85 and 90 chapters of Mechanical and electrical products; welfare effects are expected to increase by $558,000.  Tables 3 and 4 The trade creation effect of all the above M&E products is higher than the trade diversion effect. To sum up, through the simulation of tariff reduction scenarios of Mechanical and electrical products between China and Japan under the framework of RCEP, it is found that the full effect of RCEP tariff concessions will significantly increase China's imports of Japanese Mechanical and electrical products, especially the imports of Mechanical and electrical products in chapters 84, 85, 87 and 90, and the trade effect of these four chapters is expected to reach USD 4.87 billion. However, the increase in Japan's imports of E&E products from China is limited, with a trade effect of only US$33.374 million. When China reduces the tariff to zero, the trade creation gained by China's import of Japanese Mechanical and electrical products will be greater than the trade transfer effect, and the total trade effect will further increase, where the increase in trade effect mainly comes from the release of the trade potential of chapter 87. Combined with the current situation of trade of Mechanical and electrical products between China and Japan, the trade effect generated by the tariff reduction will lead to further expansion of the trade deficit of Mechanical and electrical products between China and Japan. Specifically, 21 years after RCEP comes into effect, China will gain $4.969 billion and Japan will gain $33.374 million in trade effects, and the trade deficit of Mechanical and electrical products is expected to increase by $4.936 billion to $59.668 billion. When China further reduces the tariff of Mechanical and electrical products to zero, the trade deficit is expected to increase by $8.527 billion to $63.269 billion.

Conclusions and Recommendations
Based on the partial equilibrium model, this paper uses the SMART model to analyze the tariff reductions of Mechanical and electrical products between China and Japan under the framework of RCEP, sets up three tariff reduction scenarios to simulate the impact of China and Japan on Mechanical and electrical products under the framework of RCEP, and considers the scenario of complete liberalization of Mechanical and electrical products from China to Japan in the future, and obtains the following conclusions: After RCEP comes into effect, China and Japan The tariff reduction of Mechanical and electrical products may have an impact on China's Mechanical and electrical products industry. Japan, due to the limited space for tariff reduction, when the tariff of Japanese Mechanical and electrical products is completely reduced to 0, the economic effect produced is low, and the trade creation effect and trade transfer effect obtained are 22.118 million USD and 11.256 million USD respectively, and the trade creation effect is larger than the trade transfer effect, so obviously Japan will not significantly increase the Mechanical and electrical products from China after the tariff reduction through RCEP. And China due to the tax reduction space is larger, China's tariff concessions to Japan's mechanical and electrical products will bring a greater trade effect on China, and the trade creation effect is greater than the trade transfer effect, in terms of high-tech products, only Chapter 84 mechanical and electrical products, the trade creation effect is greater than the trade transfer effect. After RCEP comes into effect, China is expected to obtain $242 million trade creation effect and $255 million trade transfer effect respectively, accounting for 48.7% and 51.3% of the total trade effect. In terms of the chapters where China's imports of Mechanical and electrical products from Japan account for a larger share, Chapter 84 and Chapter 87 Mechanical and electrical products produce a larger trade effect, and both trade creation effects are larger than trade transfer effects. Further assume that China fully implements zero tariff on Japanese Mechanical and electrical products, the trade effect will be further expanded, at which time China is expected to obtain a trade creation effect greater than the trade transfer effect. This is conducive to the increase of China's domestic welfare effect, but also can increase Japan's exports of Mechanical and electrical products to China. At present, the western capitalist countries led by the United States are technically blocking and controlling our country, trade cooperation between China and Japan under the framework of RCEP is a good way to improve the world competitiveness of China's Mechanical and electrical products by strengthening economic and trade cooperation with Japan, which can deepen the trade cooperation between China and Japan, promote the development of trade in Mechanical and electrical products between each other, and help alleviate the pressure exerted by the United States on China's This can deepen the trade cooperation between China and Japan, promote the development of trade of Mechanical and electrical products between each other, and help alleviate the pressure exerted by the United States on China's exports of Mechanical and electrical products. Based on this, this paper proposes the following recommendations. Strengthen the coordinated development of the two countries' Mechanical and electrical products enterprises at the industry level; Encourage and guide intra-industry cooperation between mechanical and electrical enterprises of the two countries; Active promotion of mutual direct investment between China and Japan.