US-China trade war costs global value chains 3-5 years of growth, UN says

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Trade shocks fueled by unilateral tariffs between the United States and China have canceled three to five years of growth among global value chains in affected countries, according to a UN guidance note.

The United Nations Development Program report on the post-pandemic future of global value chains found that trade within these supply chains has declined in absolute terms along with other types of trade. Yet they will remain at the heart of the economic recovery in the Asia-Pacific region, even as global manufacturers consider moving production closer to home.

Tariffs remain on billions of dollars’ worth of goods as part of a US-China trade war that began under President Donald Trump.

“The trade policy shock is therefore very significant,” says the UNDP report. “However, while there is some unraveling of the links in the global value chain, there is by no means a complete disintegration of the model.”

While the effect of shocks is “far from negligible,” he says, the absence of policies designed to disrupt production sharing – for example, those that target the use of foreign inputs rather than the trade in general – makes it “extremely costly to radically change the prevalence of global trade in the value chain.”

The United States and China reached a partial trade deal in 2020, although China never honored its purchase commitments. The US trade representative has since said that a “significant imbalance” persists in trade relations between the world’s two largest economies.

Besides the trade war, restrictive trade policies during the Covid-19 pandemic also amplified the shocks as producing countries restricted exports, the report says. The supply issues come as the cost of shipping goods around the world skyrockets, threatening to push up consumer prices and heightening concerns in global markets that are already bracing for an acceleration in the economy. inflation.

“What we have seen both because of the pandemic and because of the trade war is that countries, including China and the United States, have actually diversified the risks,” Kanni Wignaraja said. , Deputy Secretary-General of the United Nations and Asia-Pacific Director of the UNDP.

Read more: Joe Biden’s supply chain ‘strike force’ to target China on unfair trade

“Previously there was a lot of talk saying ‘Let’s go at the lowest cost’, and the cheapest option started stretching this global value chain,” she said. “Now we’ve seen this double shock, showing the benefit of our global value chain system, as you start to see the risk diversified and a greater reliance on multiple vendors in multiple countries. “

Commercial pacts

The report finds “significant potential” for countries to boost trade through two mega-agreements, the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Trans-Pacific Partnership, both of which involve a number of Asian economies.

CPTPP countries could benefit from the equivalent of 12 additional years of global value chain integration based on the rate observed between 2000 and 2018, while RCEP countries could benefit from an increase of around five years, according to the report.

He also suggests that Asian economies, which depend on the export of transportation equipment, electronics, textiles and clothing, among other goods, should focus on developing broad redistribution policies and social safety nets. . Both are “more efficient and effective in the medium to long term in promoting human development goals than restricting trade and investment flows,” the report said.

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