Deep Trade Agreements and Heterogeneous Consumer Welfare

Deep trade agreements (DTAs) have become an important institutional force shaping the landscape of international trade, with far-reaching implications for welfare across heterogeneous consumers. This paper develops a general equilibrium model featuring heterogeneity among both consumers and firms as well as multi-country, multi-sector input-output linkages. By explicitly distinguishing the mechanisms through which tariffs and DTAs operate, the paper systematically evaluates the effects of DTAs on heterogeneous consumer welfare. The findings are as follows. First, the complete removal of DTA provisions would lead to significant declines in consumer welfare in most countries. Shocks to core depth are larger than those to total depth, and WTO+ provisions have greater effects than WTO-X provisions. In most countries, non-service-sector workers experience larger welfare losses than service-sector workers, with low-income groups suffering particularly pronounced losses. Second, because China currently has relatively limited coverage of DTA provisions, the overall impact of completely removing these provisions is modest. Such removal would instead slightly improve the welfare of non-service-sector workers, although low-income groups would benefit the least. Meanwhile, the welfare of service-sector workers would decline, with low-income groups incurring the greatest losses. Third, China's accession to the CPTPP would not only significantly improve welfare in China and other member countries but also generate positive spillover effects for most non-member countries through input-output linkages, with particularly pronounced welfare gains for China's low-income groups. This paper not only provides a theoretical framework for evaluating the effects of deep trade agreements on heterogeneous consumer welfare but also offers a micro-theoretical basis for governments to formulate appropriate policies and more fully realize the economic benefits of deep trade agreements.