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Shooting oneself in the foot? Trade war and global value chains

Author

Listed:
  • Bellora, Cecilia
  • Fontagné, Lionel
Abstract
Despite the “Phase One Deal” agreed on mid-December 2019, bilateral tariffs between US and China remain at unprecedent high levels, which will have long-lasting effects. US tariffs remain very high on parts, components and other intermediate products; similarly, only the last wave of Chinese retaliatory tariffs has been half cut. We investigate in this paper how such tensions between highly interdependent economies will impact trade, income and jobs. We rely on a set-up featuring General Equilibrium, imperfect competition and importantly differentiating demand of goods according to their use, for final or intermediate consumption. This authorizes tracing the impact of protection along the value chains, on prices, value added and factor income. Additional tariffs from official lists are taken into account at the tariff line level, before being aggregated within sectors. Beyond the direct toll of sanctions, US exports to the world post a sizeable decrease as a result of reduced competitiveness led by vertical linkages along the value chains. Because of the tariffs in place as of February 2020, three quarters of the sectors decrease their value added in the US. Consistent with political economy determinants, these twists of value added are transmitted to production factors, leading to sizeable creation and destruction of jobs, and reallocation of capital to the benefit of protected sectors, mostly at the expense of their clients. Ultimately, this paper sheds light on the economic consequences of policies disrupting global value chains.

Suggested Citation

  • Bellora, Cecilia & Fontagné, Lionel, 2019. "Shooting oneself in the foot? Trade war and global value chains," Conference papers 333047, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333047
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    International Relations/Trade;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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