Shock transmission, global supply chains, and development: assessing responses to trade shocks

We analyse the impact of policy-driven (eg tariffs) and non‑policy-driven (eg conflicts, natural disasters) trade shocks on intermediate versus final goods components of gross production for low, middle, and high-income country groups. Further, we examine the role of direct versus indirect, and foreign versus domestic, channels in transmitting these shocks. Results indicate that tariffs and conflicts impact the composition of gross production by changing its intermediate input component, and these changes are driven predominantly by indirect and foreign channels. Trade protectionism in high‑income countries dampens low‑income countries’ global supply chain (GSC) network participation, but not that of middle‑income countries. Further, it increases their domestic input contribution to output, at the expense of developing nations. On the other hand, trade liberalisation in low and low‑middle‑income countries increases their level of GSC involvement, with the adjustment taking place in high‑income countries through an increase in their use of foreign intermediates.