Emily J. Blanchard, Chad P. Bown, Robert C. Johnson
Global Value Chains and Trade Policy
Trade and FDI
How do global value chain (GVC) linkages modify countries’ incentives to imposeimport protection? Are these linkages empirically important determinants of tradepolicy in practice? To address these questions, we develop a new approach to mod-eling tariff setting with GVCs, in which optimal policy depends on the nationality ofvalue-added content embedded in home and foreign final goods. Theory predicts thatdiscretionary tariffs will be decreasing in the domestic content of foreign-produced finalgoods and the foreign content of domestically-produced final goods. Using theory as aguide, we estimate the influence of GVC linkages on trade policy with data on bilat-eral applied tariffs, temporary trade barriers, and value-added contents for 14 majoreconomies between 1995 and 2015. Our empirical findings indicate that GVCs alreadyplay an important role in shaping trade policy. Governments set lower tariffs andcurb their use of temporary trade protection (particularly against China) where GVClinkages are strongest.