US-China trade war shocks hit global value chains badly: UN
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NEW YORK • Trade shocks fuelled by unilateral tariffs between the United States and China have undone three to five years worth of growth among global value chains in affected countries, according to a United Nations policy brief.
The report from the United Nations Development Programme (UNDP) looking at the post-pandemic future of global value chains found that trade within those supply lines shrank in absolute terms along with other types of trade. Still, they will remain at the core of economic recovery in the Asia-Pacific region even as global manufacturers consider moving production closer home.
Tariffs are still being applied on billions of dollars of goods under a US-China trade war that began under former US president Donald Trump. "The trade policy shock is therefore very large," the UNDP report states. "However, while there is some unravelling of global value chain linkages, there is by no means a wholesale disintegration of the model."
While the effect of the shocks is "far from negligible", it says, the absence of policies designed to disrupt production sharing - for example, those targeting use of foreign inputs rather than trade generally - makes it "extremely costly to radically alter the prevalence of global value chain trade".
Aside from the trade war, restrictive trade policies during the Covid-19 pandemic have also amplified shocks as producing countries restricted exports, the report states. The supply troubles come as the cost of shipping goods across the globe is skyrocketing, threatening to boost consumer prices and compounding concerns in global markets already braced for accelerating inflation.
The report finds "significant potential" for countries to boost trade through two mega agreements - the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) - which involve a number of economies in Asia. Nations participating in the CPTPP may enjoy the equivalent of 12 years of additional global value chain integration based on the rate observed between 2000 and 2018, while RCEP countries may see a boost equal to around five years, it says.
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