Simulations of Mercosur Free Trade Agreements: Scenarios with China and with the United States

Abstract

This paper aims to present the consequences of free trade agreements of MERCOSUR from a Brazilian perspective. To achieve this goal, it is used as a tool a computable general equilibrium model, the GTAP (Global Trade Analysis Project). Agreements are simulated in two different scenarios: one with China and another one with the United States. The choice of these two countries is due to the fact that they are the main trade partners of the MERCOSUR countries, besides representing two antagonistic sides of a current trade war. The results show that the countries involved in the trade agreements improve the allocative efficiency and increase specialization according to the comparative advantages. For Brazil, the agreement with China is preferable due to welfare gains, higher GDP growth and greater allocation efficiency. In the rest of MERCOSUR, however, such effects are higher in the agreement with the United States.