China-United Kingdom Free Trade Area: likely impact on the economy and on specific industry sectors in both countries

Purpose - The purpose of this paper is to predict the likely economic effects of a FTA on both China and the United Kingdom (hereafter the UK). Design/methodology/approach - Following literature review and trade relationship briefing, this paper employs the Global Trade Analysis Project (GTAP) simulation to predict the economic effects of such a FTA on both China and the UK. Findings - The simulation results indicate that a China-UK free trade agreement (hereafter CUFTA) will bring more benefits than harm to both China and the UK and achieving zero tariff or reducing TBT is mutually beneficial for both China and the UK, with the growth in GDP, economic welfare, as well as import and export. Combining zero tariff and the reduction of TBT in exceptional departments is the most favorable way to improve the macroeconomic effects without bring damage effects on the comparative disadvantage industries such as transport equipment, chemicals industries for China and textiles and apparel industry for the UK. Originality/value - After the UK voted to leave the European Union (hereafter the EU), CUFTA is put on the agenda by both governments, yet researches on CUFTA are barely started, this paper being one of the early trials. Besides, based on the simulation results, some policy suggestions will be put forward for future negotiations and industrial policies adjustment.