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Chinese supply chain shocks

Author

Listed:
  • Khalil, Makram
  • Weber, Marc-Daniel

Abstract

In structural vector autoregressive models of United States and euro area manufacturing, we use sign restrictions to identify shocks that alter the frictions to Chinese supply chain trade. We find a quantitatively significant role of such shocks for the decline of US manufacturing output at the height of the Sino-American trade tensions in 2019. At the beginning of the Covid-19 pandemic in early 2020, the results pointed towards large spillovers from the shutdown in China to manufacturing in the US and the euro area. Moreover, for the recovery in late 2020 and 2021, favourable Chinese supply chain shocks related to the shift of preferences towards goods with a large China valued-added content played a relevant role. Interestingly, the impact of Chinese supply chain shocks is not limited to manufacturing sectors that are highly exposed to China. Furthermore, negative Chinese supply chain shocks cause upward price pressure across the whole manufacturing industry.

Suggested Citation

  • Khalil, Makram & Weber, Marc-Daniel, 2022. "Chinese supply chain shocks," Discussion Papers 44/2022, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:442022
    as

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    References listed on IDEAS

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    1. Jean-Noël Barrot & Julien Sauvagnat, 2016. "Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1543-1592.
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    3. Baumeister, Christiane & Hamilton, James D., 2020. "Drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions," Journal of International Money and Finance, Elsevier, vol. 109(C).
    4. Uhlig, Harald, 2005. "What are the effects of monetary policy on output? Results from an agnostic identification procedure," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 381-419, March.
    5. Raphael Lafrogne-Joussier & Julien Martin & Isabelle Mejean, 2023. "Supply Shocks in Supply Chains: Evidence from the Early Lockdown in China," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(1), pages 170-215, March.
    6. Khalil, Makram & Strobel, Felix, 2021. "US trade policy and the US dollar," Discussion Papers 49/2021, Deutsche Bundesbank.
    7. Christoph E. Boehm & Aaron Flaaen & Nitya Pandalai-Nayar, 2019. "Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tōhoku Earthquake," The Review of Economics and Statistics, MIT Press, vol. 101(1), pages 60-75, March.
    8. Baumeister, Christiane & Hamilton, James D., 2018. "Inference in structural vector autoregressions when the identifying assumptions are not fully believed: Re-evaluating the role of monetary policy in economic fluctuations," Journal of Monetary Economics, Elsevier, vol. 100(C), pages 48-65.
    9. Juan F. Rubio-Ramírez & Daniel F. Waggoner & Tao Zha, 2010. "Structural Vector Autoregressions: Theory of Identification and Algorithms for Inference," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(2), pages 665-696.
    10. Jonas E. Arias & Juan F. Rubio‐Ramírez & Daniel F. Waggoner, 2018. "Inference Based on Structural Vector Autoregressions Identified With Sign and Zero Restrictions: Theory and Applications," Econometrica, Econometric Society, vol. 86(2), pages 685-720, March.
    11. Jesse LaBelle & Fernando Leibovici & Ana Maria Santacreu, 2021. "Global Value Chains and U.S. Economic Activity During COVID-19," Review, Federal Reserve Bank of St. Louis, vol. 103(3), pages 271-288, May.
    12. Vasco M Carvalho & Makoto Nirei & Yukiko U Saito & Alireza Tahbaz-Salehi, 0. "Supply Chain Disruptions: Evidence from the Great East Japan Earthquake," The Quarterly Journal of Economics, Oxford University Press, vol. 136(2), pages 1255-1321.
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    15. Baumeister, Christiane & Hamilton, James, 2018. "Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed: Re-evaluating the Role," CEPR Discussion Papers 12911, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    Cross-border supply-chain disruptions; trade frictions; China; trade tensions; Covid-19 recession; US and euro area manufacturing;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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