ARTNeT Webinar: How Trade Wars Disrupt Global Supply Chains: The Effective Rate of Spillover Protection

5 Nov 2020
Bangkok, Thailand
Virtual

Time and venue:
10:00 to 11:15; Online via MS Teams

Abstract:

The COVID-19 pandemic has overshadowed the fact that the US-China trade war is more than two years old with no end in sight. This presentation explains how a relatively small tariff on Chinese exports to the US (or vice-versa) can disrupt global supply chains (GSCs) by developing the concept of the effective rate of spillover protection (ERSP). In the presence of supply chains, a bilateral tariff magnifies the amount of protection provided to countries that compete with China for the activities undertaken there. We estimate domestic value added of Chinese exports to the US in 2018 using ADB’s multi-regional input-output tables. For total manufacturing, domestic value added is estimated at just around 30 per cent. Therefore, transferring these activities out of China to avoid a 25 per cent tariff makes sense as long as competitor locations can carry them out at less than not 25 but 80 per cent (25/0.3) of the costs. This is a huge buffer, and explains why relocation of activities can take place even with a relatively small tariff.

About the speaker:

Jayant Menon, Ph.D is Visiting Senior Fellow at the ISEAS-Yusof Ishak Institute in Singapore, following his early retirement from the ADB, where he was Lead Economist in the Office of the Chief Economist. He started work at Monash University at its original campus in Clayton, Melbourne. He has also worked at the University of Melbourne, Victoria University, the ADB Institute in Tokyo and the American University in Washington, DC. He holds adjunct appointments with the ANU, University of Nottingham, UK and IDEAS, Malaysia. He has served on the Advisory Boards of CDRI, Cambodia and University of Nottingham, Malaysia. He has authored/edited 15 books, 40 chapters in books and 80 articles in peer-reviewed journals.