US-China trade war shocks cost global value chains 3-5 years of growth, United Nations study says
- Report from the UN Development Programme 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
- Tariffs are still being applied on billions of US dollars of goods under a US-China trade war that began under former president Donald Trump
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 UN Development Programme 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 to home.
“The trade policy shock is therefore very large,” the UN 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 coronavirus pandemic have also amplified shocks as producing countries restricted exports, the report states.
We’ve seen this double shock, showing the advantage of our global value chain system because you’re starting to see the diversified risk, and more reliance on multiple suppliers in multiple countries
“What we’ve seen both because of the pandemic and because of the trade war is that countries, including China and the US, have actually diversified risk,” said Kanni Wignaraja, UN assistant secretary general and the UN Development Programme’s Asia-Pacific director.
“Previously there was a lot of talk saying ‘Let’s go for least cost,’ and the cheapest option started stretching that global value chain.
“Now we’ve seen this double shock, showing the advantage of our global value chain system because you’re starting to see the diversified risk, and more reliance on multiple suppliers in multiple countries.”
It also suggests Asian economies, which rely on the export of transport equipment, electronics, textiles and apparel among other goods, should focus on developing general redistribution policies and social-safety nets.
Both are “more efficient and effective in the medium- to long-term in promoting human development objectives than is restricting trade and investment flows,” the report says.
