Assessing potential economic costs and benefits from a Zimbabwe-China Free Trade Agreement University of Zimbabwe Business Review, Volume 4, No. 2, July-December 2016 77 Assessing potential economic costs and benefits from a Zimbabwe-China Free Trade Agreement Fanuel Hazvina, Albert Makochekanwa and Takawira Mumvuma Department of Economics, University of Zimbabwe, P.O. Box MP167, Mt. Pleasant, Harare, Zimbabwe Correspondence Author: fanuelha@gmail.com ABSTRACT This study investigated the potential impacts of the formation and implementation of a Zimbabwe-China Free Trade Area (FTA). The study employed the World Integrated Trade Solution (2015), Software for Market Analysis and Restrictions on Trade (WITS?SMART), to investigate the potential impacts of the FTA on exports, imports, tariff revenue and the overall welfare in Zimbabwe. The findings were that $44.39 million worth of new trade will be created with China while around $34.9 million trade will be diverted resulting in a positive net trade effect of $9.49 million for Zimbabwe. The results also suggest that Zimbabwe will lose around $44.68 million in tariff revenue. The study recommends that if Zimbabwe is going to commit itself to trade liberalization with China, it will have to come up with a new fiscal revenue base to compensate for the loss in tariff revenue. This can be done through putting more emphasis on non-trade taxes revenue sources as well as putting in place efficient fiscal revenue collection mechanisms. The study also recommends that since the FTA is also likely to affect welfare through employment losses welfare losses in Zimbabwe as imports from China will displace local production, there is need for undertaking adjustment programs that enhance skills and productivity in order to facilitate the relocation of labour into sectors where production will be expanding as a result of the FTA. Key words: FTA, Trade, Zimbabwe, China, Welfare 1. INTRODUCTION Due to forces of globalization, there has been increased interaction of actors across boundaries around the world. This has also resulted in the strengthening of the relationship between Africa and some East Asian countries such as China, India and Singapore. However, some have attributed the increasing relationships between most African countries and countries like China to the perceived decline in favourable treatment received by some African countries from the Western countries. For Zimbabwe, the emergence of ‘hostility’ through the use of sanctions by most Western countries especially European Union (EU) member states and the United States of America (USA) prompted the country to seek friendship with the East. The worsening of relations with the EU and USA precipitated into declining foreign direct investment (FDI) and donor assistance inflows from Western countries and therefore resulted in Zimbabwe seeking for alternative partners such as Iran, India as well as the People’s Republic of China (Edinger and Burke, 2008). Following the establishment of formal relations between Zimbabwe and China, a number of Zimbabwean delegates including the President have made visits to China to explore ways in which the two countries can cooperate. The visit by President Mugabe in 2014 culminated in the signing of US$4 billion worth of deals and the historic visit by the Chinese President Xi Jinping in December 2015. Since their cooperation, several of the agreements which Zimbabwe and China have signed seem to be almost similar to the cooperation arrangements that China has established with other African states and presumably result from ad hoc initiatives generated by both sides. (Edinger and Burke,2008). In light of the issues highlighted above, this paper seeks to explore Zimbabwe’s growing trade relationship with China through analyzing the potential economic impacts of a Zimbabwe-China Free Trade Agreement (FTA) considering that the trade relations between the two countries has been on the increase since 2001.