Tariff Reduction, Import Liberalization, and Consumer Welfare in RCEP Member States: Evidence from a Structural Model

Abstract

This paper evaluates the welfare effects of tariff reductions and import liberalization under the Regional Comprehensive Economic Partnership. We build a structural trade model based on Eaton and Kortum (2002) and Caliendo and Parro (2015), and use exact-hat counterfactuals to quantify changes in real wages, price indices, trade shares, and consumer welfare across RCEP members and India. The counterfactual results show that China’s unilateral tariff elimination raises domestic welfare, while bloc-wide tariff elimination generates broader welfare gains among member economies. Reductions in non-tariff barriers further amplify the effects of tariff liberalization. India’s welfare changes little if it remains outside RCEP under tariff reductions alone, but it suffers welfare losses when members also reduce non-tariff barriers. By contrast, India’s accession substantially increases its real wages and consumer welfare. Nash-equilibrium tariffs are close to zero for most bilateral pairs, suggesting that RCEP’s tariff-reduction commitments are broadly consistent with members’ welfare incentives. These findings support deeper tariff liberalization, trade facilitation, and phased accession arrangements for sensitive economies.