Trade shocks induced by the tariff battle between the United States and China have undone three to five years worth of growth among global value chains in affected countries, according to a policy brief by the United Nations Development Programme (UNDP), which said trade within those supply lines shrank in absolute terms along with other types of trade.

The countries, however, will stay at the core of Asia-Pacific economic recovery even as global manufacturers consider moving production closer to home.

“The trade policy shock is therefore very large,” a news agency reported quoting the UNDP report. “However, while there is some unraveling of global value chain linkages, there is by no means a wholesale disintegration of the model.”

While the effect of the shocks is ‘far from negligible’, the absence of policies designed to disrupt production sharing makes it “extremely costly to radically alter the prevalence of global value chain trade”, the report said.

Apart from the trade war, restrictive trade policies during the COVID-19 pandemic have also amplified shocks as producing countries restricted exports, the report stated. The supply troubles evolve as the cost of shipping goods across the globe is skyrocketing, threatening to boost consumer prices and compounding concerns in global markets already bracing for accelerating inflation.

“What we’ve seen both because of the pandemic and because of the trade war is that countries, including China and the U.S., have actually diversified risk,” said Kanni Wignaraja, UN assistant secretary-general and UNDP’s Asia-Pacific director.

“Previously there was a lot of talk saying ‘Let’s go for least cost,’ and the cheapest option started stretching that global value chain,” she said. “Now we’ve seen this double shock, showing the advantage of our global value chain system because you’re starting to see the diversified risk, and more reliance on multiple suppliers in multiple countries.”

The report found ‘significant potential’ for countries to boost trade through two mega agreements, the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), both of which involve a number of economies in Asia.

Nations participating in the CPTPP may enjoy the equivalent of 12 years of additional global value chain integration based on the rate observed between 2000 and 2018, while RCEP countries may see a boost equal to around five years, according to the report.

The UNDP policy brief also recommended that Asian economies that rely on the export of goods like transport equipment, electronics, textiles and apparel, should focus on developing general redistribution policies and social-safety nets.

Fibre2Fashion News Desk (DS)

Disclaimer - All News/Articles items are subject to copyright and no article either in full or part may be reproduced in any form without permission from Fibre2Fashion Pvt. Ltd.