The Decline of Global Value Chains
In the period leading up to the 2008 financial crisis, global value chains expanded rapidly, eventually accounting for around 70% of international trade. But in the years since, GVCs have stagnated and declined slightly in importance – and are set to undergo a massive reconfiguration in the coming decade.
LONDON – For more than a decade, China has been haunted by the prospect of getting stuck at an income level below that of the developed world (the “middle-income trap”). But the country’s economy is well on its way to eliminating this fear: growth has been faster, and driven by more innovation, than in most other middle-income countries. And yet, a key aspect of China’s growth model, the economy’s integration into global value chains, is now being undermined from several directions. How China responds to this challenge will shape the speed and nature of its own growth and that of the global economy.
In the period leading up to the 2008 financial crisis, global value chains expanded rapidly, eventually accounting for around 70% of international trade. But in the years since, GVCs have stagnated and declined slightly in importance. Most of this change has actually been driven by China, which has radically reduced its use of foreign inputs, by producing more of these domestically, and exported more intermediate goods.
As a result, Asia, previously an important supplier of intermediate goods to China, now accounts for a smaller share of GVCs than it once did. At the same time, European dependence on China has increased at the expense of value chains within Europe. And the United States has absorbed some of the increase in Chinese intermediate exports, reducing its share of GVCs. The net effect of all this, notes Bruegel’s Alicia García-Herrero, is that China has become less dependent on the world, and the world more dependent on China.
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