This research gap is amplified by the significant numbers of pro-market and pro-globalization reforms that many of the emerging Asian and Latin American economies have enacted in the early twenty-first century with the aim of providing MNEs with significant opportunities to fine slice their GVC activities in terms of integrating, coordinating, and communicating with geographically dispersed partners to co-create value and of effectively competing in the global marketplace. The organization of global economic activities under GVCs has enabled global learning and the rapid expansion of ideas through the exchange of technology and human capital, thus contributing to lower production costs, higher specialization levels, and more innovative products and services. The resulting vibrant international economic activities have also promoted societal welfare and fostered wealth and job creation. Furthermore, GVCs’ role is becoming extremely important in achieving sustainable economic growth and development and given these benefit, several international organizations have made GVCs as part of their policymaking agenda. Various countries from Asia to Latin America have benefited through their insertion into GVCs. For instance, the participation of southern-based small suppliers in GVCs has been noted to be crucial in improving their so-called economic upgrading prospects through the flow of valuable knowledge from lead firms – MNEs. Economic upgrading refers to a process whereby economic actors – countries and firms – move to higher value activities in GVCs. It is also considered to be their passport to entry into international markets.

To address the aforementioned gaps in the extant literature, our study built on the nexus between the de-globalization and GVCs literature to investigate the impact of international trade protectionism on the reconfiguration of GVCs and further explore its boundary conditions. Specifically, we aimed at answering the following two fundamental questions: (1) “What are the implications of international trade protectionism for GVCs?” and (2) “What risk mitigation response strategies are suited to manage trade protectionism and develop resilient GVCs?” In answering these two questions, we focused on a set of US protectionism measures enacted during the Trump era and maintained by the current administration of President Biden, and discussed their implications for the reconfiguration of GVCs in terms of their control and coordination. This context is important in light of the aggressive protectionist measures enacted by the US against China and other trading partner countries – which have led to the decoupling of value chain activities. For instance, the USA has withdrawn from the Trans-Pacific Partnership agreement, renegotiated free trade agreements with Mexico and Canada under the umbrella of NAFTA, and enacted a range of new tariffs on goods and services. In addition, MNEs, as lead firms from the US, are the major actors behind the global organization and coordination of GVCs; thus, such context provides important insights into the changing geography of GVCs as well as their resilience. To understand the US trade protectionism measures and their implications for GVCs, we examined 174 newspaper articles published between 2016 and 2020 in broadsheet newspapers (The New York Post, The New York Times, and Newsday) and specialist business publications (The Financial Times, The Wall Street Journal, and Bloomberg). In doing so, we made three contributions to the international business literature. Equally importantly, given that the extant IB studies have rarely employed historical accounts to research important IB topics, we deployed unique historical research methods, thus compiling and reconciling empirical evidence relating to US trade protectionism and the reconfiguration of GVCs.

Our findings contribute to the IB, de-globalization, and the GVCs literature in several important ways. First, the IB literature makes the implicit assumption that globalization is relentlessly accelerating. Conversely, our study drew on the de-globalization literature to challenge this implicit assumption. We conceptualized international trade protectionism as a specific form of de-globalization and proposed that it acts as a driver to shape policy reforms and tariffs in order to control the activities of GVCs and spur local economic activities for low-skilled workers, thus leading to the reconfiguration of GVCs from the global to the regional and local scale. Our efforts to identify this link have significant implications for both theory and practice. Our other important contribution to the IB literature is that we took a step toward exploring the potential influence of international trade protectionism on GVCs by taking into account various industries as a boundary condition, as more globalized industries rely far more on global suppliers of components, which certainly poses both more opportunities for and threats to the functioning and coordination of GVCs, an aspect that is virtually neglected in the IB literature. We, therefore, filled this gap in the dominant IB studies.

Second, our study makes important contributions to both the de-globalization and GVCs literature. The de-globalization literature suggests that changes in the global structural and political systems to protect national economies from immigrants have serious implications for IB and the vulnerability of GVCs. Relatedly, the international trade protectionism measures enacted by governments are expected to limit the international transfer of the tacit knowledge that resides in global excellence centers, restrict the free movement of goods and shift production to geographically dispersed locations to reduce costs, and disharmonize those international trade policies that foster inequality and industrial decay. Unfortunately, we lack a systematic understanding of the nature and extent of international trade protectionism and its impact on GVCs. This has been echoed by those scholars who have called for more research on “the potential impact of various expressions of the renewed protectionism, such as Brexit and Trumpism, on GVCs.” Our study hence responds to this call by exploring the potential impacts of trade protectionism on GVCs, with the core argument that trade protectionism poses serious challenges to their activities. It thereby advances the de-globalization literature by not only placing de-globalization in the context of international trade protectionism, which has been little explored but also exploring the consequences of such protectionism.

On the other hand, our study also contributes to the GVCs’ literature, which suggests that a clear pattern of dispersed and fragmented international MNE business activities emerges where offshore production sites located in low-cost developing countries are closely linked with consumers in developed markets. The critical role played by GVCs in international business, alongside the populist and nationalist rhetoric that is emerging from developed markets (e.g., the US), has generated a severe backlash against globalization and the very nature of GVCs due to the disappearance of local companies and firing of workers resulting from increased foreign competition. The global integration of value chain activities is disrupted by import tariffs, anti-globalization policies, and restrictions on the migration of skilled labor for the free flow of ideas and knowledge through GVCs. Institutional changes have reversed the globalization trend, with governments implementing protectionist measures and weakening global institutions such as the World Trade Organization. Globalized industries are increasingly more likely to be severely affected by trade protectionism – in the form of increased tariffs and trade restrictions to reduce imports in an attempt to protect domestic sectors and boost local employment, which limits the trade activities of MNEs and restrains the free flow of goods, services, and capital across borders. This situation has been made more complicated, for example, by the US’s ‘America First’ policy stance, resulting in the initiation of strict industrial policies and tariff wars aimed at curtailing imports from Canada, Mexico, Europe, and China. We advance the GVCs literature by connecting it with the de-globalization literature, which had hitherto been largely viewed as separate despite being closely associated. We synthesize the key insights and establish the link between the two streams of literature, proposing that trade protectionism plays a key role in shaping policy reforms and tariffs in order to control GVC activities and spur local economic activities for low-skilled workers.

Besides contributing to knowledge, our study has practical and policy implications. First, it provides insights to MNEs’ decision-makers about changing global market environment. Given the fact that the trade protectionist measures by governments are increasing trade barriers for MNEs and disrupting GVCs, it is vital for MNEs to consider macro-economic factors including protectionism policies that undoubtedly determine the effectiveness of GVCs. This high-level consideration is particularly relevant for those decision-makers of MNEs who are doing the cost–benefit analysis of developing and nurturing GVCs. The consequence of protectionism having disrupted GVCs is that the over-reliance on global partners affected the operations of MNEs, thereby reducing their profitability. Therefore, decision-makers must determine which activities should be outsourced to global partners and which should be assigned to regional partners. By doing this, MNEs can diversify their outsourcing activities at both regional and global levels, therefore achieving profit gains even during disruptive events. Moreover, this study has important implications for policies and policy-makers. On the one hand, there is an urgency for policies that should reduce trade deficits and cut the import tariff revenue losses suffered by MNEs in order to improve their competitiveness. On the other hand, it is vital for policy-makers to pay greater attention to the populace with low education levels and low skill sets, who are vulnerable to ever-changing job environments, since these marginalized low-skilled workers who forced the de-globalization movement desperately need their governments to take actions by, for instance, creating favorable policies to help and protect them as well as providing them with training opportunities.

The remainder of this paper is structured as follows. Next, we review the literature on GVCs and trade protectionism. We then detail our methodology with an explanation of the data collection and analysis process. Subsequently, we present our findings on how US trade protectionism affects the GVC activities of MNEs. Before concluding, we present the theoretical and practical implications of our study as well as its limitations.

To read the full research article as it was published by Springer Nature, click here.

To read the full research article, click here. 

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Introduction

Since 2018, the United States and China have been embroiled in a trade war. The trade war stems from US President Donald Trump’s decision to impose tariffs on several products and commodities imported from China. In response to the policy, China also imposed tariffs on several products and commodities imported from the US. Research conducted by Chad P. Bown (2022) from the Peterson Institute forInternational Economics shows that as of July 2018, the average US tariff on imports from China was still 3.8%. However, tariffs on imports from China gradually increased until they peaked at 21% in September 2019 and then dropped to 19.3% in February 2020.

Meanwhile, on the Chinese side, in July 2018, the average tariff on imports from the US was at 7.8% and then gradually increased to 21.8% in September 2019. As of February 2020, Chinese tariffs on imports from the US decreased to 21.3% and reached a low of 21.2% on July 2020. Furthermore, based on the impact of tariffs on the percentage of trade, around 66.4% of US imports from China and 58.3% of Chinese imports from the US in June 2022 are still affected by tariffs set against each other.

There are efforts between the US and China to defuse the trade war through the Phase One agreement, which was agreed upon in December 2019. The two countries agreed on structural reforms to China’s economic and trade regime, particularly in intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange. In the deal, China also committed to increasing the imports of goods and services from the US. Furthermore, a dispute resolution system was established with immediate and effective implementation and enforcement. Finally, the US agreed to modify Section 301 of the Trade Act of 1974. Despite these efforts, as shown from the data in the previous paragraph, the tariffs that the US and China imposed on each other remained relatively high.

The US put several Chinese companies on the Entity List as the trade war escalated between the two countries. The US Bureau of Industry and Security (2022) reported on August 23rd, 2022, that about 600 Chinese companies were already included on the list, with 110 companies included during President Joe Biden’s tenure. In practice, companies on the Entity List will have restrictions on access to commodities, software, and technology from the US. However, US entities may export, re-export, and transfer such matters to companies on the Entity List with a license from the US Bureau of Industry and Security.

The conflict between the US and China is not limited to political economy issues but also security politics. China’s claim to much of the South China Sea, known as the nine-dashed line, is contrary to the principles of the US freedom of navigation. This situation leads to freedom of navigation operations (FONOPS) by the US Navy in those waters that China regards as part of its territories as opposed to its claims. The existence of Taiwan also creates issues between the two countries. Although since 1972, it has recognized the communists in Beijing as the sole representative of China, the US maintains its ties with nationalists in Taipei and ensures their independence from Beijing. China’s growing economic and military power over the past two decades allows the country to become increasingly assertive of Taiwan. This raises tensions with the US as Taiwan’s ally and security guarantor.

The conflict between the US and China prompted the two countries to reduce their dependence on each other. US manufacturing imports from China have decreased, while Asian countries categorized as low-cost countries, have increased. At the same time, the issue of reshoring US companies’ operations in China arose. A survey conducted by A.T. Kearney (2022) found that about 47% of executives of US manufacturing companies operating in China have moved part of their operations back to the US in the past three years. 29% said they would restore parts of their operations in the next three years, and 16%said they had considered reshoring but are yet to make a decision. In the survey, US company executives also outlined that their options also include Mexico, Canada, and Central American countries (nearshoring), not limited to reshoring to the US. This decision coincides with the trend of automation by US companies; instead of looking for cheap labor, they are replacing them with robots. The process creates challenges for countries that host part of US companies’ operations characterized by the labor-intensive and technology-laden process.

From the Chinese side, the disruption caused by the conflict with the US encourages them to become more economically self-sufficient. Such efforts to achieve self-sufficiency are made through the dual circulation model, which includes changing the growth model from export-based to domestic consumption and reducing dependence on imports. Concerning the second element, according to the Economist Intelligence Unit (2020), China focuses on three sectors. First, technology with a priority towards semiconductors. China provides fiscal incentives and subsidies, and encourages cooperation between industries and universities to reduce dependence on US semiconductor companies or companies from other countries that use US technology. China also provides fiscal incentives and subsidies, and encourages cooperation between industries and universities. The second sector is energy. China does not rely on the US or its allies for energy supplies, however, shipping oil and gas by sea is vulnerable to a blockade or interception. The threat of a blockade prompted China to increase its renewable energy sector investment. The third sector is food. China’s agricultural sector is labor-intensive, but they experience labor shortage and are dependent on imports of seed and technology. This limitation prompted a policy of agriculture modernization from labor-intensive to technology-intensive.

Alfin Febrian Basundorois a graduate student at the Strategic and Defence Studies Centre, Australian National University, Canberra, Australia.

Muhammad Irsyad Abraris a graduate student at the Department of International Relations, Universitas Gadjah Mada (UGM), Yogyakarta, Indonesia.

Trystantois an undergraduate student of international relations at Universitas Gadjah Mada (UGM), Yogyakarta, Indonesia.

To read the abstract as it was originally posted by the Journal of World Trade Studies, click here.

To read the full research article, click here.

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Industrial raw materials are once again at the forefront of policy discussions, for several reasons.

The challenge of achieving net zero CO2 emissions by 2050 will require a significant scaling up of production and international trade of several raw materials which will be critical for transforming the global economy from one dominated by fossil fuels to one led by renewable energy technologies (IEA, 2021). Such technologies make generally more intensive use of minerals than their fossil fuel counterparts. For example, a typical electric car requires six times the mineral inputs of a conventional car and an onshore wind plant requires nine times more mineral resources than a gas-fired plant (IEA, 2021). Therefore, while the green transition will reduce the global dependence on fossil fuels, it will intensify the pressure on the production and efficient international exchange of other raw materials. For example, because of the increasing share of renewables in new investment in the energy sector, the average amount of minerals needed for a new unit of power generation capacity has increased by 50% since 2010 (IEA, 2021).

Some relatively abundant raw materials, which have traditionally underpinned industrial production (e.g. aluminium, copper and iron ore and steel) will also remain essential in green sectors and their enabling technologies. Other materials, such as rare earth minerals (notably neodymium and dysprosium), lithium, cobalt or nickel, are also prevalent in new technologies and thus their demand is expected to grow substantially (Gielen, 2021). The IEA projects, for example, that in the next twenty years the clean energy sector’s demand for materials such as cobalt, natural graphite or lithium will increase from twenty to more than forty times (Figure 1.1). Overall, depending on the assumed pace of green transition, it is estimated that the demand for minerals (from the energy as well as other sectors) will grow by on average four to six times between 2020 and 2030 (IEA, 2021).

To read the full policy paper, please click here.

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European countries are investing heavily in the green transition. But projects such as the Italian and Croatian wind farms have taken on new relevance and urgency as Europe deals with the war in Ukraine and works to reduce its energy dependence on Russia. Both projects, however, illustrate the challenges ahead for the European Union in ensuring a future that is both green and energy-secure. In the Taranto project, a European turbine-maker’s failure to deliver products on time provided an opening for its Chinese competitor. At Senj, Norinco International, which is providing both capital and hardware, is not only a Chinese state-owned industrial giant, but also a major defence company and supplier of weapons and equipment to the Chinese People’s Liberation Army.

Though Europe’s oil and gas dependence on Russia is the more immediate chokepoint, its reliance on China for the energy technologies of the future poses a similar problem. China has become a global player across a wide range of green technologies, which makes it indispensable for the green transition that the EU is pursuing. As with Russia, this creates risks of over-dependence on an authoritarian power. Compared to Russia, however, China is a far bigger non-market economy and has much greater sway over global technology markets.

To read the full report from the Rhodium Group. please click here.

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In the years between World War I and World War II, the rise of nationalist ideologies and crushing economic conditions ushered in an era of trade protectionism. In the interwar years, trade liberalization that had accelerated through 1913 essentially halted, dismantling previously established trading networks. However, these protectionist dynamics shifted with the signing of the Reciprocal Trade Act of 1934, which institutionalized tariff reduction reforms. Then, the 1944 Bretton Woods Agreement at the end of World War II laid the groundwork for the postwar economic world through the establishment of the World Bank, the International Monetary Fund, and eventually the General Agreement on Tariffs and Trade and its successor organization, the World Trade Organization, which was intended to serve as the global promoter of trade liberalization. During this time, the world trading system witnessed a reduction in tariffs and a push toward regional and multilateral trade agreements. With newly realized access to foreign markets, multinational firms—especially those in the manufacturing sector—initiated a trend of offshoring, which allowed firms to pursue lower costs abroad and achieve higher productivity gains.

As trade liberalization expanded, companies began to reexamine their production processes and disaggregate them in order to take advantage of lower relative prices and high productivity abroad in a bid to reduce the overall costs of goods production. Significant declines in transportation and communication costs were instrumental in this development. They enabled companies to develop supply chains that take advantage of low costs around the world to produce parts and components in different locations and then assemble them in a third location. International companies, particularly within the manufacturing sector, benefitted from decreased production costs and cheaper labor, but not without a cost to U.S. workers. Following a 30-year trend of offshoring, some firms have begun renationalizing their production chains, particularly since the 2008 recession. Meanwhile, the effects of globalization on manufacturing capacity and the U.S. trade deficit have grown to play a more prominent role in public discourse.

The Covid-19 pandemic caused unique supply chain challenges and demand shocks for nearly every industry. Quarantines and border closures constricted imports from foreign producers, and manufacturers faced severe material and labor shortages, lengthy manufacturing delays, and decreases in consumer demand. As this daunting confluence of factors was exposed, policymakers began to sound alarm bells and warn that existing supply chains would be unable to handle the bottlenecks in production. In response, two different approaches to supply chains have emerged: resiliency and reshoring.

To read the full report from the Center for Strategic & International Studies, please click here.

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• Trade in the CPTPP region has largely paralleled the members’ trade flows with the rest of the world. The main beneficiary appears to be Vietnam—at least in the sense that after it ratified the CPTPP, Vietnam has notably expanded its trade in goods, and its inbound investment has been solid, despite the Covid-19 pandemic. This can be a positive signal to other Southeast Asian countries that are considering CPTPP membership, such as the Philippines, Indonesia, and Thailand. Japan and Singapore have led the region’s trade in digitally deliverable services, also a key sector for potential CPTPP members and services export superstars such as the Philippines, South Korea, and the United Kingdom.

• The CPTPP matters for its users: member country firms that export to the CPTPP region find the CPTPP’s market access, services liberalization, and e-commerce provisions beneficial to their businesses. E-commerce provisions are facilitating online sellers: of micro and small online seller-exporters, 73 percent find the provisions of the CPTPP that ensure free data transfer across borders as somewhat or very beneficial, some 66 percent find the CPTPP’s ban on server localization to be beneficial, and 61 percent find the agreement’s liberalizing trade in services to be important. The benefits are even greater for midsize and large firms. Firms also highlight as beneficial the CPTPP’s provisions that commit members to protecting the consumer against unwanted spam and shielding consumers’ privacy.

• The CPTPP has garnered interest and formal applications from several non-members seeking to join an agreement that includes high-quality e-commerce provisions with some of their main trading partners. Especially for some of the Southeast Asian countries, accession to the CPTPP could also help kick-start and lock in domestic digital regulatory reforms. As a major development, both China and Taiwan formally applied to the CPTPP in September.

• Preliminary econometric evidence shows that trade agreements, such as the CPTPP, that have robust and binding e-commerce chapters in addition to goods and services chapters indeed have value in promoting trade in goods and services, as well as digitally deliverable services, among the member countries. Of course, as the number of comprehensive agreements with e-commerce chapters is still small and these agreements are nascent, further research will be needed in the next two to three years to further dissect the value added of digital trade provisions in trade agreements.

• The CPTPP is nascent, and much of its life has been marred by the Covid-19 crisis. At the same time, the agreement could not be timelier, precisely because high-quality e‑commerce provisions help promote small business recovery through e-commerce; surveys time and again show that over the course of the Covid-19 pandemic, firms that sell online have outperformed firms that do not sell online.

CPTPP members certainly appear to agree that the agreement’s e-commerce provisions create new value in their trade relations. In its August 2021 meeting, the CPTPP Commission decided to form a Committee on Electronic Commerce to facilitate continued discussion on the implementation and operation of the e-commerce chapter. The new committee is tasked to “position the CPTPP to play a central role in global rulemaking in this field.” The members agreed to assess the CPTPP’s impacts on themselves.

To read the full report from the Center for Strategic and International Studies, please click here.

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To read the full report from the Peterson Institute For International Economics, please click here.

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Services constitute at least a quarter of total trade. Between 2009 and 2019 global services trade increased by nearly 50%, compared to 18% for goods trade. Yet it is rarely taken as seriously as goods in global trade policy discourse. This is a problem when making the case for trade.

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This Policy Brief assesses the extent to which the United States increased its imports from South Korea after the US imposition of tariffs on Chinese exports. Korea benefited from this shift in US imports, although the increase was relatively small in most sectors. The authors use highly disaggregated US import and tariff data to examine adjustments in US purchases of manufactured goods from its trade partners. Their analysis indicates that Korea made a small gain in the US market following the levying of US tariffs on Chinese exports, with Korea’s share of overall US manufacturing imports rising 0.9 percent and its share of US manufacturing imports subject to trade war tariffs rising 1.0 percent. Gains were spread across a variety of manufacturing sectors—such as wood products, textiles and apparel, and machinery—reflecting both the choices made by US officials regarding which Chinese exports to tax and the nature of preexisting trade relationships between South Korea and the United States.

To read the full policy brief from the Peterson Institute for International Economics (PIIE), please click here. 

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