China’s Duty-Free Trade Policy to Bangladeshi Products: A Potential Trade and Economic Effects Analysis Using Partial and Computable General Equilibrium Model

China is one of the critical and strategic trading partners of Bangladesh. The Chinese government has declared a zero-tariff facility for 97% of products imported from Bangladesh. The objective of the study is to analyze the effects of the facilitating trade policy on the trade performance of different sectors of Bangladesh. The study applies partial equilibrium SMART simulations, which are accessible in WITS, and the general equilibrium CGE model with GTAP as the methodological tools to quantify the impact of China’s preferential trade policy on trade and the overall economy of Bangladesh. The results of partial equilibrium analysis show that the preferential trade policy substantially positively impacts Bangladesh’s exports to the Chinese market. The results also suggest that the change in total trade under China’s new preferential trade policy is around $58.99 million, with a trade creation of $ 52.16 million and a trade diversion effect of US$ 6.83 million. The CGE analysis results show that China’s new trade policy will have little impact on Bangladesh’s real GDP, and the effects of the policy on exports vary across different sectors. However, the overall effects suggest that Bangladesh will earn a net welfare gain due to China’s new duty-free trade policy in Bangladesh. The findings of the study provide crucial policy suggestions on whether China’s latest tariff facilities will substantially impact the trade and economy of Bangladesh as well as provide foundations for analyzing the effects of future bilateral trade agreements.