Unity versus Collaboration: Construction of China's Belt and Road Free Trade Agreement 2.0 Network

Abstract

AbstractIn the context of the United States prioritizing bilateral as well as trilateral trade agreements and China's regional economic integration strategy based on the Belt and Road (B&R) Initiative, the B&R free trade agreement (FTA) and the US–European–Japanese FTA (UEJFTA) have become the two regional economic integration processes with the greatest potential impact on the world economic landscape. The present paper examines the game situation as well as the economic effects of China's B&R‐FTA 2.0 network against the United States' UEJFTA to study the optimization of China's B&R FTA system. By constructing a four‐country extended game model under a two‐part expansion, we find that an increase in members will promote the welfare of each country when there is a single regional trade agreement; the potential member countries tend to choose larger organizations for higher economic benefits when there are several regional trade agreements. Our quantitative simulation shows that promoting the construction of the FTA 2.0 network based on the B&R can significantly alleviate the impact of FTA entered into by the United States with its major trading partners.