Equation3 indicates that productivity is positively related to the range of intermediate inputs utilised in production. Firms importing intermediate inputs from abroad can choose from a larger variety of intermediate inputs and thus have higher productivity than those using domestic intermediate inputs only. In this regard, importing inputs may affect the TFP due to technological and quality factors embedded in the imported inputs (Bas & Strauss-Kahn, 6). These datasets are further merged with a constructed HS 6-digits tariffs and the exchange rate dataset that serve as instruments and control variables. To protect domestic industries, the federal government can impose trade tariffs — essentially taxes on imports. The current administration has used tariffs and renegotiated long-term trade deals in its effort to protect domestic industries, but protectionist moves often invite retaliatory responses that ultimately can increase costs for consumers.

6Sensitivity analyses conducted on the shocks given to the ROW suggest that less stringent mandatory closures would result in smaller losses, particularly for the ROW. 2See also Walmsley and Minor for a detailed explanation of model and data used in this analysis. Further insights into the spatial transmission of economic impacts will be presented below in terms of individual commodities. This article is made available via the PMC Open Access Subset for unrestricted research re-use and secondary analysis in any form or by any means with acknowledgement of the original source. These permissions are granted for the duration of the World Health Organization declaration of COVID-19 as a global pandemic. The U.S. ranks 1st in 7 manufacturing industries out of 16 total, while China was the largest for the other industries, as seen in Figure 2.6.

The link between trade and the cost of living

China’s imports of dairy products from the US are predicted to rise by 350%, contributing to an overall increase in China’s imports of these products by 9.3%. Freund et al. considered the impacts of China’s agreement under the Phase One Agreement to expand imports from the United States. They concluded that these would discriminate against other countries, and particularly other developing countries, unless China used this as an opportunity for broader liberalization. Feenstra and Hong focused on the agricultural import targets under the Phase One Agreement.

• Second, imported inputs can help reduce the costs of production, as they are often more affordable than domestic inputs.
• BCG, “Reshoring of Manufacturing,” December 10, 2015; UPS, “Change in the Chain Survey,” November 2015.
• China’s exports and imports would increase by 1.9% and 4.7%, respectively.
• For instance, the Chinese share in Mexico’s total imports of automotive intermediate goods has jumped from 7.5% in 2019 to 10.5% in 2021.
• First, this study demonstrates that importing intermediate inputs contributes to productivity and export growth.
• These were, in turn, aggregated to the 16 industrial sectors used in the simulations .

Then, we consider that price competition does not play a decisive role insofar as the developing countries have few powers to control them. Blecker and Ibarra agreed with this view when they reasonably assume that the growth rate of the price of the primary goods grows at an exogenously given rate, presuming that conditions in global commodity markets determine them. Since we are dealing with a generalization of the Blecker and Ibarra approach, we preferred to assume that prices are neither increasing nor decreasing, which is also consistent with the non-existence of technological change. We follow Blecker and Ibarra by assuming that the growth rate of intermediate inputs is a function of the growth rate of exports. While Blecker and Ibarra have considered just four sectors, namely two exporters and two importers, the version presented here is advanced in a fully multi-sectoral scheme, which considers an arbitrary number of sectors. Figure6 shows the trajectory of per capita income in Mexico for the two simulated cases.

Manufacturing Safety, Compensation, and Profit

One concern that has been raised is that the vulnerabilities to Intermediate Goods Imports In Key U S. Manufacturing Sectors supply-chain spreading of negative impacts will strengthen anti-globalization sentiment. This could manifest itself in trade restrictions and business decisions to reduce global interactions. For example, countries cannot rely on international trade to make up deficiencies in personal protective equipment and other essential goods and services in the presence of a truly global pandemic. In addition to the aforementioned resilience tactics, countries can further reduce their vulnerability through flexible production processes domestically to be able to shift to goods in short supply.

The results in Table 8 show that the Phase One tariff reductions would increase China’s imports by 0.31% and US imports by 0.25%. In Table 9, we see that China’s industrial imports increased by an estimated 0.32% and exports by 0.15%. The increases in agricultural imports would be larger at 0.42%, with exports falling by 0.23%. US industrial imports increased by 0.44%, exports increased by 0.18%; agricultural imports increased by 0.15%, and exports increased by 0.24%. In the policy simulations, we focus primarily on the changes in each round, where the US increased tariffs and China retaliated. But we also consider the outcome where the US imposed tariffs but China did not retaliate, since this allows us to see whether each country’s tariff increases were welfare-reducing for itself, as well as for its trading partner .

Research Fellow – Regional Development Study Center, Chung-Hua Institution for Economic Research

The top “unadjusted” bars in both panels report data computed directly from PCE and headline trade numbers, which classify trade in goods and services based on their country of origin. For now, we focus on the top bars and leave the discussion of the bottom “adjusted” bars for a later section. The US has a stated ambition to build less vulnerable supply chains, with a focus on ‘friendly’ countries. In 2022, the US Secretary of the Treasury, Yellen, introduced the concept of “friend-shoring”. The real repercussions of the pandemic on global supply chain reconfiguration may emerge gradually in the upcoming years.

Similarly, Dixon’s research on 45% additional tariffs on manufacturing products by both countries showed that the real incomes of the United States and China would decline by 0.7% and 2.5%, respectively. Research by Guo et al. shows that, if the US imposed a 45% tariff on all Chinese goods, US real wages would decline by 0.66%; if China imposed a reciprocal tariff, they would decline 0.75%. Table2 presents the results of the econometrically estimated parameters by the Johansen method. Firstly, it may be noted that practically all parameters concerning the real exchange rate are statistically significant.

It focuses particularly on evaluating the impacts of the tariff increases, and their potential future removal, on real incomes and trade outcomes. Although this result is akin to the one obtained by Blecker and Ibarra , it is worthy to highlight a substantial difference. Those authors have considered a particular structure for the economy, with the export sectors, for instance, being disaggregated in two sectors, namely manufactured and other goods, the latter comprising primary commodities, chiefly oil and agricultural products. The authors then reasonably assume that both the growth rate of exports of the primary goods and their price grow at an exogenously given rate, presuming that conditions in global commodity markets determine their quantities and prices. Here we do not make these assumptions insofar as our first aim was just to obtain a generalization of the MSTL.

Global production sharing, trade patterns, and industrialization in Southeast Asia. In I. Coxhead (Ed.), Routledge handbook of Southeast Asian economics (pp. 161–183). The size of the coefficient in the IV FE estimation is much larger than in the fixed effect estimation . One possible explanation is that the fixed effect estimation is skewed due to the correlation between variables of interest and error terms. An omitted variable issue could result in a downward bias of the fixed effect estimates. Another possibility is that the IV FE estimates the local average treatment effect of firms affected by the instruments, whereas the FE estimates the overall population’s average treatment effect .