Ripple Effects in Global Value Chains: Evidence from an Episode of the US-China Trade War
May 17, 2022
Kazunobu Hayakawa, Ju Hyun Pyun, Nobuaki Yamashita, and Chih-hai Yang
This study empirically examines the ripple effect of demand shocks on upstream suppliers in global value chains (GVCs). Specifically, we investigate how changes in US imports from China alter China’s imports of intermediate inputs in machinery industries from Japan, South Korea, and Taiwan. To address the simultaneity bias in this input-output linkage, we use the Trump tariffs in an episode of the USChina trade war as an instrument for US import demand from China. The analysis of China’s monthly imports from the three supplier economies during 2018-2019 finds evidence of negative tariff spillover via GVCs: the decrease in China’s output exports to the US caused by the Trump tariffs reduced China’s input imports from supplier economies. Also, this adverse ripple effect was the most significant in Taiwan, where multinational enterprises use China as an export platform, amplifying the adverse demand shock.