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Global Supply Chain Reorganization under the United States-China Trade Tension

Paper Session

Sunday, Jan. 3, 2021 12:15 PM - 2:15 PM (EST)

Hosted By: Chinese Economic Association in North America
  • Chair: Heiwai Tang, Johns Hopkins University and Hong Kong University

The Cost of Dissolving the WTO: The Role of Global Value Chains

Mostafa Beshkar
,
Indiana University
Ahmad Lashkaripour
,
Indiana University

Abstract

As trade agreements face renewed pressure, we show that the rise of global value chains has multiplied the value of trade agreements to unprecedented levels. We cast our argument using a non-parametric neoclassical trade model that accommodates global input-output networks and nests a wide class of quantitative trade models as a special case. To guide our analysis, we derive analytic formulas for optimal non-cooperative trade taxes in this general framework. These formulas predict the extent of trade restriction if global trade agreements were to dissolve. Mapping these formulas to data, we quantify the value of trade agreements for various countries. We find that the disintegration of existing trade agreements will erase 30% of the overall gains from trade, which amounts to a $2.8 trillion loss in global GDP. Around 46% of this value is driven by the agreements’ facilitation of global value chains.

Rising Import Tariffs, Falling Export Growth: When Modern Supply Chains Meet Old-Style Protectionism

Kyle Handley
,
University of Michigan
Fariha Kamal
,
U.S. Census Bureau
Ryan Monarch
,
Federal Reserve Board

Abstract

We examine the impacts of the 2018-2019 U.S. import tariff increases on U.S. export growth through the lens of supply chain linkages. Using 2016 confidential firm-trade linked data, we identify firms that eventually faced tariff increases. They accounted for 84% of all exports and represented 65% of manufacturing employment. For the average affected firm, the implied cost is $900 per worker in new duties. We construct product-level measures of exporters' exposure to import tariff increases and estimate the impact on U.S. export growth. The most exposed products had relatively lower export growth in 2018-2019, with larger effects in 2019. The decline in export growth in 2019Q3, for example, is equivalent to an ad valorem tariff on U.S. exports of 2% for the typical product and up to 4% for products with higher than average exposure.

The Impact of US-China Trade War on Taiwan's International Trade

Loretta Fung
,
National Tsing Hua University
Jin-Tan Liu
,
National Taiwan University
Heiwai Tang
,
University of Hong Kong and Johns Hopkins University
Chun-Yen Wu
,
National Taiwan University

Abstract

We study the impact of the US-China tariff changes in 2018-2019 on the restructuring of global supply chains, using transaction-level trade data from Taiwan. We find significantly positive but delayed effects of US tariffs on Taiwan's exports to and imports from the US, at both the product and firm-product levels. The effects are heterogeneous across product types, with the effects being strongest for consumption goods, followed by capital goods and weakest for intermediate inputs. The trade diversion responses were found mostly among big firms, with some of the small firms actually reducing their trade with the US.

Not Coming Home: Trade and Economic Policy Uncertainty in American Supply Chain Networks

Ben Charoenwong
,
National University of Singapore
Miaozhe Han
,
Chinese University of Hong Kong
Jing Wu
,
Chinese University of Hong Kong

Abstract

We study the impact of trade and economic policy uncertainty on supply chain networks of publicly-listed American firms. Beyond the actual trade and other economic policy, the uncertainty around these policies contributes to supply chain risk. Whether such policy uncertainty will bring production back to the U.S. or only a redistribution of the global supply chains is theoretically ambiguous and warrants an empirical analysis. Using firm-level global supply chain data and policy uncertainty indexes, we investigate the question using reduced-form empirical specification with high dimensional fixed effects. Rather than inducing production to come “home,” on average higher U.S. trade policy uncertainty predicts an increase in foreign and decrease in domestic supplier relationships, driven by firms with majority foreign customers. In contrast, those with mostly domestic customers decrease foreign supplier relationships. American firms also appear to substitute among foreign countries in response to foreign-country-specific economic policy uncertainty – shifting suppliers from countries with higher uncertainty to ones with lower uncertainty. Firms with less production flexibility and more bargaining power respond more to all measures of economic policy uncertainty. Our results suggest firms take precautionary action consistent with a trade-off between lowering production cost versus avoiding risk related to trade and economic policy uncertainty.
JEL Classifications
  • F1 - Trade
  • F4 - Macroeconomic Aspects of International Trade and Finance