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China's evolving role in global production networks: implications for Trump's trade war

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  • Prema-chandra Athukorala

Abstract

This paper examines China's evolving role in global production networks and its implications for assessing the potential impact of the 'trade wars' declared by President Trump. The analysis, which is based on a systematic disaggregation of trade based on global production sharing into components and final assembly, suggests that the Sino-US trade gap is a structural phenomenon driven by the pivotal role played by China within East Asia centered production networks. The global competitiveness of US MNEs depends on their ability to use China as the production base for supplying the rest of the world, and China is now an important supplier of components used in US manufacturing. Given this intricate interdependence between the two countries, attempt to impose punitive tariffs on China is bound to face formidable opposition from business interests in the United States. Even if the protectionist threat becomes a reality, the impact may not be as damaging as commonly thought because global production sharing has considerably weakens the link between relative prices and trade flows.

Suggested Citation

  • Prema-chandra Athukorala, 2017. "China's evolving role in global production networks: implications for Trump's trade war," Departmental Working Papers 2017-08, The Australian National University, Arndt-Corden Department of Economics.
  • Handle: RePEc:pas:papers:2017-08
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    More about this item

    Keywords

    China; global production networks; Sino-US trade dispute; punitive tariffs; MNEs;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other

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