Winner and Loser in Terms of the FTAs and the Trade War: Case Study of the Japanese Market

The US raised trade war issues under protecting national security against China in July 2018. Likewise, the trade war has spread out across other regions such as India, the EU, Canada, Mexico, Russia, and Turkey through an additional tariff on products such as steel and aluminum. Clearly, the uncertainty has shown an increase since this friction created a pessimistic environment for the future world economy and did hurt economic development. Therefore, it has had negative effects for welfare -especially those (low-income consumers) who prefer to buy cheap imported goods. Contrary to protectionism, Japan has signed new FTAs with the EU and the US. In that context, this paper quantitatively examines the Japanese new FTAs under the trade war. It employs the general equilibrium approaches to not only investigate the economic structure of each country trade ow but also address the FTAs and the impacts of the welfare and sectoral value chains of the trade war. Essentially, the paper scenarios depend on the ocial list of the FTAs and the trade war-related goods. As a result of the FTAs under the trade war, the new Japanese trade agreements have provided some opportunities for its market as well as targeted countries. For instance, the Japanese benet from the EU-Japan FTA would be $4.11 billion U.S.D. and the EU would gain $768 million U.S.D. within the 15-year. Moreover, the US not only would get a huge advance but also could get back its export market share from Pacic island nations in Japan when Japan would eliminate the tariff on concerned sectors for the US goods. For example, the US and Japan would improve their welfare by $4.09 billion U.S.D. and $398 million U.S.D., respectively through the limited USA-Japan FTA. That is, the US market would comparatively earn much more than Japan. Lastly, those who participate in the FTAs would boost their GDP, welfare, and value-added (productivity). For example, not only would Japan provide some opportunities for its market and then enhance its welfare and GDP, but also the EU and the US would boost their macro variables. However, from the perspective of the other regions/countries, those regions/countries which are not in the trade deal could lose their export market share in Japan, the US, and


Introduction
Akamatsu's model states that it is not possible to protect domestic goods entirely because of the ying geese pattern of development (Akamatsu, 1962) besides, global value chain (GVC) leads to economically integrate all countries and then boosts international trade among countries.  pointed out that global trade has increased faster and faster even when world output has been growing relatively slow than because of tariff reduction and trade liberalization, boundary issue, technological change, income convergence, and intermediate input trade (vertical specialization) (Feenstra, 1998).
Economic partnership agreements (EPAs) and foreign direct investment (FDI) have boosted macro variables and sustainable development and reduced the poverty rate in Asia through international production networks (Aldaba, 2017). In the perspective of existing Southeast and East Asian studies, involving the multi/bilateral trade agreements has promoted their markets to not only become more productive (Choi & Hahn, 2013) and competitive (Aldaba, 2012), but also engage in innovation-enhancing activities due to learning-by-exporting (Hahn & Park, 2011;Nabeshima et al., 2018). Therefore, Asian countries have economically and strategically thrived vibrantly through free-trade agreements (FTAs) such as the Comprehensive and Progressive Agreement for Trans-Paci c Partnership (CPTPP) and the Association of South-East Asian Nations (ASEAN).
As an example, Japan, which has taken to waving the free trade ag, joined the Trans-Paci c Partnership (turned CPTPP) agreement in February 2016, as well as signing an EPA with the European Union (EUJEPA) in July 2018. Moreover, the Trump administration has recently started negotiating a free trade agreement with Japan -called the limited US-Japan Trade Agreement (USJTA)-since April 15th, 2019 and nalized a limited bilateral trade agreement consisting of tariff cuts on agricultural and industrial goods and commitments on digital trade on September 25, 2019 (Osaki, 2019). It seems that the United States' trade strategy would set a bilateral trade agreement instead of multilateral agreements such as withdrawal from TPP12 because of the national security threat or power-based trading environment (Urata, 2019;Kuwayama, 2019).
On one hand, in terms of trade con ict due to trade de cit issues, the US raised trade friction issues under protecting national security against China in July 2018, calling trade war since then (see Appendix).
Likewise, the trade war has spread out other regions such as India, the EU, Canada, Mexico, Russia, and Turkey through an additional tariff on products such as steel and aluminum. The trade war has had many negative impacts on some countries' macro variables such as welfare through GVC (Ahir, 2019;IMFBlog, 2019), especially low-income consumers from both developing and developed countries who prefer to buy cheap import-related goods (Bellora & Fontagne, 2009;Amiti et al, 2019). Also, the trade war created a pessimistic environment for the future world economy and undermined the multilateral trade agreements under the World Trade Organization (WTO). Accordingly, trade uncertainty was expected to reach its highest point on record in 2019 (The Economist, 2019).
Obviously, scholars have pointed out that imposing tariffs between those countries has hurt the ow of international trade between them and a positive atmosphere in the world , and especially low-income consumers who prefer to buy cheap import-related goods (Fajgelbaum et al., 2019). In that context, this study investigated the Japanese new FTAs (with the EU and the US) and analyzed these FTAs under the trade war by using the GTAP10 database. It employed the CGE model due to it beging the most appropriate not only for investigating the economic structure of each country's trade ow but also addressing the FTAs and the impacts of the welfare and sectoral value chains of the trade war.
Essentially, the scenarios rely on the o cial list of the FTAs and the trade war-related goods (see Appendix). In literature, we are not the rst to separately examine the impact of the FTAs and the trade war (Amiti et al, 2019;Freund et al., 2018;Berthou et al., 2018;Bellora & Fontagné, 2019;Grübler et al., 2019;Kuwayama, 2019;). For example, Chang et al., (2019) investigated the impact of the trade war on Japanese multinational corporations (especially China and North America) by examining Japanese rms' data. However, the objective of this paper is to examine the new FTAs under the trade war in terms of the Japanese market in GTAP10 database for the rst time. Accordingly, this paper aims to answer the questions; do the FTAs help to reduce the trade war negativity impact on the selected countries and other regions/countries in terms of welfare and GDP; Who is winner and loser, or Which tariff reduction under the FTAs would give the most bene t to which countries?
As a result of the FTAs under the trade war, the new Japanese trade agreements have provided some opportunities for its market as well as targeted countries. For instance, the Japanese bene t from EU-Japan FTA would be $4.11 billion U.S.D. and the EU would gain $768 million U.S.D. within the 15-year. The USA not only would get a huge advance but also could get back its export market share from Paci c island nations in Japan when Japan would eliminate the tariffs on concerned sectors for the USA goods. For example, the U.S. and Japan would improve their welfare by $4.09 billion U.S.D. and $398 million U.S.D., respectively through the limited USA-Japan FTA within the 15-year. Lastly, those who participate in the FTAs would boost their GDP, welfare, and value-added (productivity). For example, not only would Japan provide some opportunities for its market and then enhance its welfare and GDP, but also the EU and the US would boost their macro variables. However, from the perspective of the other regions/countries, those regions/countries which are not in the trade deal could lose their export market share in Japan, the US, and the UE28 and would, therefore, harm their GDP and welfare. This paper is organized as follows: after the introduction and literature review, the third section portrayed the framework of the GVC, the FTAs, and the trade war. The fourth section provided an explanation of the methodology and the data. The fth section discussed and presented the empirical result of the GTAP database. The sixth section concludes the paper.

Methodology And Data Sources
This paper relies on the CGE model and GTAP10 database because this paper clearly presents not only trade interdependence between the countries of concern but also trade policy impact on their future economies through tariff policy. In literature, applied general equilibrium helps us to stimulate the FTAs and the trade war through tariff policy. In general, the CGE model stimulates possible policy change impact if the certain condition changes.

Methodology
This paper employed the CGE model, which is the appropriate way to interpret the FTAs and the trade war impact on welfare and other variables. Moreover, this paper used the uncondensed GTAP model, which is more sensitive to tariff and productivity parameters. This data relies on the linkage model by implementing the GTAP v10 database with the 2014 base-year. Moreover, global bilateral trade patterns, international transport margins, and protection matrices were also addressed in this data (Aguiar et al., 2019). In the GCE model, we implemented simple non-tariff and tariff policy in order to examine and simulate the result of Non-Tariff Measurements and tariff policy. This analysis allows us to change a certain condition such as tariffs/subsidies (policy) and then policymakers could select the optimal tradeable scenarios through the CGE simulations.

Data Resources
To investigate Japan's economic integration with the EU and the USA, this paper used the Global Trade Analysis Project (GTAP) Data Base, version 10 (also referred to as GTAP 10) which was launch in 2019. The database, which implies global general equilibrium models (calling CGE), provides time series of input-output tables, bilateral trade ows, transport costs, tax (income and factor) and tariff information, and all other data calculating based on Social Accounting Matrices (SAM) and elasticity parameters (Bur sher, 2016;Aguiar et al., 2019). This paper run version 3.70 RunGTAP model and the database relies on 4 reference years (2004, 2007, 2011, and 2014) which account for 65 sectors in each of the 141 countries/regions (Aguiar et al., 2019). Accordingly, this study used the 2014-year base as the last reference year and aggregated the regional and sectoral basis to focus on 17 (from 141) regions and to distinguish 17 (from 65) sectors regarding this study question (see Appendix).

Results Of The Analysis
To analyze the Japanese gain from Japan-EU EPA and limited Japan-US FTA under the US-China friction, this paper basically followed the FTAs papers (Felbermayr et  limited USA-Japan FTA (USA-JFTA) which accounts for Japan tariff elimination for USA's import goods (JapanE) and USA tariff elimination for Japan's goods (USAE).

Aggregate Impact on Welfare
Brie y, after the trade agreement deal, some product prices would comparatively decrease more than others due to the reduction of the tariffs and trade costs. Therefore, consumers start maximizing their utility by purchasing more cheaper goods based on their good CES, and then they can improve their welfare. Therefore, the total world welfare effect of the policy reforms is positive. The equivalent variation depicts what increase in the welfare the consumers would have needed to consume the new basket.
As scholars stated that the trade war has punished most of those countries experience the effect of the US-China friction Balistreri et al., 2018) due to the sectoral integration across countries. Surprisingly, the USA-China friction did not directly have a negative impact on Japanese welfare and some others because these countries' companies relocated their parts and components of concern due to the Armington CES[2] for domestic/imported allocation (Figure 1 and 2). Likewise, after the US (China) has imposed a tariff for Chinese (the US) goods, they have started managing and shipping their products to East and South Asia, and Africa in which have actually seen an economic bene t. For example, South and East Asia have gained most of the bene t from this trade war through USATC because the American market switched its production portfolio from China to South Asia and neighbors. Similarly, China traded its tariff targeted products to South/East Asian and neighboring countries instead of the American market (Figure 1; see Appendix). In addition to the trade friction, the trade war was pervaded to other regions by imposing additional tariffs on India, the EU, Canada, Mexico, Russia, and Turkey. Canada and Turkey have had the most negative impact on their welfare due to their sector tariff rates and their export market share in the US.
On the other hand, the Japanese new FTAs have provided some opportunities for its market as well as targeted countries. For instance, the Japanese bene t from the EU-Japan FTA would be $4.11 billion U.S.D. and the EU would gain $768 million U.S.D. within the 15 years. This paper also documented that each agreement had a different contribution to welfare in total (see Appendix). Especially, the EU is quite a big and attractive market for Japanese rms. Therefore, the Japanese market would get more bene ts than the EU under two-tariff elimination (EU-J and J-EU) due to their market size, their export market share in each country, and their exchange currency rate. While the EU's market would have a positive impact on welfare through the J-EU, the EU-J has a negative effect on its welfare because of their sectoral tariff differences and their CES. As we investigated that GVC magni es not only trade gain but also trade cost/con icts. That is, GVC has a positive and negative impact on countries by FTAs and there, therefore, are winners and losers, consequences of the substitution through opportunity cost. The perspective of other regions/countries, while J-EU would have a positive impact on Turkey, India, Mexico, and South Asia because the more market increases the more welfare increases due to the sectoral integration, those regions which are not in the trade deal could lose their export market share in Japan and the UE28 due to EU-Japan FTA in general and would have, therefore, negative effect on their macro variables (Figure 1).
In addition, after the US withdrawal from the TPP12, they then have lost their export market share in Japan because of CPTPP. However, the US not only would get a huge advance but also would get back its export market share from Paci c island nations in Japan when Japan would eliminate the deal tariffs on concerned sectors for the USA goods within 15-year. For example, the U.S. and Japan would improve their welfare through the limited USA-Japan FTA by $4.09 billion U.S.D. and $398 million U.S.D., respectively. That is, the US market would comparatively earn much more than Japan because this literally relied on their sectoral tariff level and their sectoral contribution. This trade deal would have a mostly negative impact on not only their neighbors such as Latin America and Southeast Asia but also the EU28 market. Indeed, the trade deal helps to reduce the trade war cost for the US market and relocated the USA's rm in the Japanese market, especially agricultural sectors (Figure 1). Interestingly, allocative e ciency in Japan would boost welfare by 60 % while it could have a negative effect on the USA and the EU. Likewise, terms of trade in goods and services would improve welfare in the EU, the USA, and Japan by 80%, 60%, and 40%, respectively because of the import substitution elasticities ( Figure 2).
We investigated welfare decomposition based on gaining from import tariff policy. Therefore, the Japan-EU FTA would signi cantly boost their welfare from import tariffs by $1531 million U.S.D. in Japan and $328 million U.S.D. in the EU. Moreover, Japan-USA FTA could considerably improve welfare by $1447 million U.S.D. in Japan, but it could cause welfare to decrease by -$1 million U.S.D. in the USA (Table 1) because the US ship mainly agriculture to Japan would cause its agriculture good price to increase.
Lastly, our result for GDP change suggested that those who participate in the FTAs would boost their GDP. Interestingly, Japanese and American consumers would improve their welfare through limited FTA, while American GDP could increase, Japan's GDP could have a negative impact because Japan heavily protects its agriculture sectors (tariff rate differences) which provide comparatively high tariff level (see Appendix). The more the EU's consumers improve the welfare, the more they have a positive impact on their GDP (Figure 3). This means the USA and the EU could recovery the trade war case of GDP. However, China, Canada, Turkey, Mexico, India, and Russia would shrink not only their welfare but also their GDP due to the trade friction. The most loser in GDP would be Canada, Turkey, Mexico, and Paci c island nations due to the US tariff policy and the FTAs.

Sectoral Value-Added
We investigated the global value chain or sectoral value-added effect of the FTAs under the trade war. Consequences of the current tariff rate reduction, each country's sector has a different reaction from each agreement. In other words, if one of the selected countries heavily protects its sectors, she can get a negative impact on its GDP and GVC in relation to its sectoral tariff rate and its CES when she signs an FTA. Moreover, the import substitution elasticity affects the terms of trade most directly because it affects the quantity of import demanded by Japan's consumers when its import tariffs are removed. For example, if Japanese import substitution elasticity is high, consumers in Japan will readily substitute domestic goods for relatively "cheaper" imported goods when import tariffs are removed. As a result, as Japanese consumers move away from domestic goods, more will be available for export. The elasticity of substitution between the domestic and the aggregate imported variety can also affect the terms of trade results in our model. The removal of tariffs reduces the price paid by consumers in Japan for manufactured and agri-food imports from the other regions and causes the Japanese import demand quantity to increase.
In general, the value-added would tend to increase in all sectors regardless of the individual country because FTAs reducing trade cost (i.e. iceberg) would boost productivity. As a result of the non-tariff barrier would help to build great opportunities for the Japanese manufacturing sector, increasing by a total of $1619 million U.S.D. The second value-added sector would be the service sector, enhancing by $200 million U.S.D. However, the Japanese agri-food sector could have a negative value, $121 million U.S.D. Expressly, Automobile, Machinery and Equipment, and Computer, Electronic and optic would be the most value-added sectors. The FTAs, therefore, could improve productivity in the competitive sectors ( Figure 4).
Also, the EU would obviously tend to improve its sectoral value-added. In particular, agri-food, some manufacturing, and service sectors could be the most advantageous sectors while only the automobile sector could shrink by $150 million U.S.D. through Japan-EU EPA. Moreover, the sector with the largest changes would be agri-food in the USA and could follow the manufacturing and service sectors ( Figure  4). Moreover, value-added in Japanese manufacturing and service would comparatively increase more than the value-added in the USA's and the EU's manufacturing and service. However, value-added in agriculture would have the opposite ration for the markets that while the Japanese value-added would decrease, the others would increase in the agriculture sectors (Table 2).
Stated brie y, value-added in agri-food increase in the USA and EU while it would decrease in Japan because Japan has the highest tariff rate. After all, this effect symmetrically works (see Appendix). Another example is that the EU has the highest tariff rate for the automobile that's why the value-added would decrease in the EU while the opposite reaction could appear in Japan. In short, manufacturing and service in Japan would be the strongest growth, agri-food and service in the EU would be substantial growth, and agri-food and textile sectors in the USA would be performing well in general (Table 2).

Conclusion Remarks
Scholars quantitatively and theoretically documented that the trade liberalization leads to market share reallocations towards more productive rms, thereby increasing aggregate productivity (Antràs & Yeaple, 2014;Melitz & Redding, 2014). However, the US raised the trade war issues under protecting national security against China in July 2018. Scholars quantitively provided that there were maybe few winners regarding sectoral gain but, in general, the imposing tariffs hurt not only the targeted countries and the country imposing the tariffs but also others through GVC (Freund et al., 2018;Berthou et al., 2018;Bellora & Fontagné, 2019).
Contrary to protectionism, Japan has signed new FTAs with the EU and the US. In that context, this paper quantitively examined the Japanese new FTAs under the trade war. It employs the general equilibrium approaches to not only investigate the economic structure of each country trade ow but also address the FTAs and impact on the welfare and sectoral value chains of the trade war. The paper scenarios depend on the o cial list of the FTAs and the trade war-related goods. Speci cally, we rst implemented the USA-China friction and the USA's trade policy against India, the EU, Canada, Mexico, Russia, and Turkey in order to present the economic issues. After that, we analyzed the Japan-EU EPA and the limited Japan-US FTA to present the new FTAs pro ts.
As a result of the CGE model suggested that the Japanese new FTAs have provided some opportunities for its market as well as targeted countries. For instance, the Japanese bene t from the EU-Japan FTA would be $4108 million U.S.D. and the EU would gain $768 million U.S.D. within the 15-year. The USA not only would get a huge advance but also could get back its export market share from Paci c island nations in Japan when Japan would eliminate the tariffs on concerned sectors for the US goods. For example, the U.S. and Japan would improve their welfare through the limited USA-Japan FTA by $4090 million U.S.D. and $398 million U.S.D., respectively. That is, the US market would comparatively earn much more than Japan. Lastly, our result for GDP change suggested that those who participate in the FTAs would boost their GDP. Interestingly, Japanese and US consumers would improve their welfare, while the US GDP could increase, Japan's GDP could have a negative impact through the limited Japan-US FTA. Moreover, the more the EU's consumers would improve the welfare, the more they would have a positive impact on their GDP. This means Japan, the US, and the EU could recovery the trade war case of GDP and welfare growth. On the one hand, value-added in agri-food would increase in the US and EU while it would decrease in Japan because Japan has the highest tariff rate and this effect symmetrically works. Moreover, the EU has the highest tariff rate for the automobile that's why the value-added would decrease in the EU and the USA while the opposite reaction could appear in Japan. indeed, manufacturing and service in Japan would be the strongest growth, agri-food and service in the EU would be substantial growth, and agri-food and textile sectors in the USA would be performing well in general.
In summary, there are winners and losers due to the consequences of the FTAs between these countries. Firstly, those who participate in the FTAs would boost their GDP, welfare, and value-added (productivity). For example, Japan would provide some opportunities for its market and then enhance its welfare and GDP as well as the UE and the US. However, the perspective of the other regions/countries, those regions/countries which are not in the trade deal could lose their export market share in Japan, the US, and the UE28 and would have, therefore, a negative impact on their GVC, GDP, and welfare. Changes in GDP (in Percent) Due to the FTAs and the Trade War. Source: GTAP10 database, author's calculation.