Global Supply Chains and Trade Policy

Abstract

How do global supply chain linkages modify countries' incentives to impose import protection? Are these linkages empirically important determinants of trade policy? To address these questions, we introduce supply chain linkages into a workhorse terms-of-trade model of trade policy with political economy. Theory predicts that discretionary final goods tariffs will be decreasing in the domestic content of foreign-produced final goods. Provided foreign political interests are not too strong, final goods tariffs will also be decreasing in the foreign content of domestically-produced final goods. We test these predictions using newly assembled data on bilateral applied tariffs, temporary trade barriers, and value-added contents for 14 major economies over the 1995-2009 period. We find strong support for the empirical predictions of the model. Our results imply that global supply chains matter for trade policy, both in principle and in practice.

Does Trade Policy Impact Food and Agriculture Global Value Chain Participation of Sub‐Saharan African Countries?

“…Therefore, trade policies appear to have an important "chain effect", suggesting that a restriction imposed by one country not only dampens partner countries' exports but also the country itself through value chain linkages. This confirms the theoretical argument whereby optimal tariff policy no longer exclusively depends on the location of the imported good, but also on the nationality of the value added content embodied in that good (Blanchard, Bown, and Johnson 2016).…”

“…In terms of backward participation, when import-competing sectors use foreign inputs, tariffs allow to pass some protectionist rents from the domestic producers on to upstream foreign input suppliers. This could represent an incentive for foreign suppliers to move to those countries/sectors to get the benefits of the protection (Blanchard, Bown, and Johnson 2016). Moreover, while the majority of observed protective measures are bilateral, some of them are the result of free trade agreements or customs unions which can affect GVC participation differently, entailing a broader notion of preferential trade regimes, including rules of origins and possible nontariff issues (Curran and Nadvi 2015).…”

“…On the one hand, we may find a positive impact, since RTAs are meant to introduce a broader set of bilateral preferences between members and include possible non-tariff issues such as general regulatory policies (Baier and Bergstrand 2007). On the other hand, this positive impact could be, totally or partially, offset by strict rules of origins (i.e., request for additional domestic stages of production by the importing country), prolonged phasein periods, as well as a high influence of multilateral inputs on foreign value added that do not directly benefit from bilateral preferences (Curran and Nadvi 2015;Blanchard, Bown, and Johnson 2016).…”

“…In the second case, the effect is more ambiguous, as the negative impact of the import taxation on the foreign value added sourced from the partner country may be counterbalanced by the development of import-competing sectors. This may eventually raise the incentive of the direct importer to increase its input supply by taking advantage of the protectionist rents (Blanchard, Bown, and Johnson 2016). Finally # it ; s jt and w ij represent the usual set of reporter-time, partner-time, and country-pair fixed effects, respectively, while ijt is the error term.…”

Mega‐Regional Trade Agreements and the Future of the WTO

“…Indeed, Blanchard et al. () provide evidence that such influences even affected the tariffs set by high‐income and emerging economies over the period 1995 to 2009.…”