The Misguided War on Global Value Chains
The COVID-19 pandemic has brought economies around the world to an abrupt halt and highlighted the fragility of existing global value chains. But demolishing these key drivers of international trade and investment would only make a bad situation worse.
WASHINGTON, DC – Most international trade and investment occurs in networks which divide production into discrete steps that can be carried out in different countries. Firms exchange inputs and outputs in cross-border value chains, some of great complexity. These value chains – whether intra-firm or inter-firm, regional or global – accounted for more than two-thirds of world trade in 2017 and an astonishing 80% in some manufacturing industries.
But, as a result of COVID-19, global merchandise trade is set to plummet by an estimated 13-32% in 2020. Worse yet, the pandemic has paralyzed manufacturing networks and supply chains – especially in China, which accounts for 28% of global manufacturing output. That has delayed the delivery of essential services and food, pharmaceuticals, basic medical products (including surgical gowns and masks), electronics and automotive components, metals, and other manufactured goods.
In the aftermath of the damage and economic disruption wrought by COVID-19, business leaders are reassessing the extent of their firms’ dependency on single foreign suppliers and examining how to mitigate strategic vulnerabilities. And there are growing calls from rich-country political leaders for radical shifts in production structures and trade policy.