TARIFF WARS DISRUPTING GLOBAL VALUE CHAINS
As tariff wars become the new normal in global trade, policy makers and industry leaders are arguing for twin focus on scale and localisation.
Even as countries emphasise on locally manufactured products for domestic markets, there is need to reduce barriers to international trade. At a session in Davos on global value chains (GVCS), US Commerce Secretary Wilbur Ross defended the tiff over tariffs. “The world has to rebalance on trade. US will continue to fight for fair rules of trade,” he said.
Tariffs wars are among the three serious challenges to global trade. The long chain of linkages that bring products from the manufacturers to consumers worldwide is under threat. GVCS, which account for over two thirds of world trade, are being disrupted by tariff wars. Add to this the focus on improving sustainable practices and use of emerging tech, and there appears a perfect storm for GVCS.
In recent decades, manufacturing of complex products has been done in a disaggregated manner. Various components and sub-assemblies of engineering goods are manufactured in different countries and then assembled in a central location to be then shipped back to consumers.
“Small and medium enterprises and MNCS need to understand the risks and opportunities associated with the impending changes to GVCS.
And, also the future shape of production as a driver of economic growth and development,” said a report by World Economic Forum (WEF) and United Nations Development Programme (UNDP) on GVCS.
According to the World Bank, participation in GVCS is associated with higher productivity gains and economic growth. A 1 per cent increase in GVC participation is estimated to increase per capita income by more than 1 per cent. This is about twice the effect of participation in conventional trade. As a result, the poverty reduction impact of GVC participation is greater, said the report.
“Global trade policies are also development policies,” said Achim Steiner, administrator of UNDP. “Disruption is the new norm and requires new types of public policies for sustainability,” added Steiner.
The WEF UNDP report has projected a potential value impact across end-to-end value chains of -40 per cent at the lower bound and +70 per cent at the upper bound because of the changes taking place.