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Global Supply Chains and Trade Policy

Emily Blanchard (), Chad Bown () and Robert Johnson

No 11044, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: How do global supply chain linkages modify countries' incentives to impose import protection? Are these linkages empirically important determinants of trade policy? To address these questions, we introduce supply chain linkages into a workhorse model of tariff setting with political economy. Theory predicts that discretionary final goods tariffs will be decreasing in the domestic content of foreign-produced final goods. Provided foreign political interests are not too strong, final goods tariffs will also be decreasing in the foreign content of domestically-produced final goods. Using theory to guide our empirical strategy, we test these predictions with newly assembled data on bilateral applied tariffs, temporary trade barriers, and value-added contents for 14 major economies over the 1995-2009 period. Our results offer strong support for the predictions of the model and demonstrate that global supply chains already play an important role in shaping trade policy.

Keywords: GSP; preferences; supply chains; tariffs; temporary trade barriers; trade agreements; value added (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr and nep-int
Date: 2016-01
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