Global Supply Chains and Trade Policy

72 Pages Posted: 20 Jan 2016 Last revised: 18 Sep 2017

See all articles by Emily J. Blanchard

Emily J. Blanchard

Dartmouth College - Tuck School of Business

Chad P. Bown

Peterson Institute for International Economics

Robert C. Johnson

University of Notre Dame - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: January 2016

Abstract

How do global value chain linkages modify countries' incentives to impose import protection? Are these linkages empirically important determinants of trade policy in practice? To address these questions, we develop a new value-added approach to modelling tariff setting with GVCs, in which optimal policy depends on the nationality of value-added content embedded in home and foreign final goods. Theory predicts that discretionary tariffs will be decreasing in the domestic content of foreign-produced final goods and (provided foreign political interests are not too strong) the foreign content of domestically-produced final goods. Using theory as a guide, we estimate the influence of GVC linkages on trade policy with newly assembled data on bilateral applied tariffs, temporary trade barriers, and value-added contents for 14 major economies over the 1995-2009 period. Our empirical findings indicate that GVCs already play an important role in shaping trade policy. Governments set lower tariffs and curb their use of temporary trade protection (particularly against China) where GVC linkages are strongest.

Keywords: GSP, preferences, supply chains, tariffs, temporary trade barriers, trade agreements, value added

JEL Classification: F13

Suggested Citation

Blanchard, Emily J. and Bown, Chad P. and Johnson, Robert C., Global Supply Chains and Trade Policy (January 2016). CEPR Discussion Paper No. DP11044. Available at SSRN: https://ssrn.com/abstract=2717593

Emily J. Blanchard (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Chad P. Bown

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Robert C. Johnson

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

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