China’s evolving role in global production networks: Implications for Trump’s trade war

This paper examines China’s evolving role in global production networks and its implications
for assessing the potential impact of the ‘trade war’ 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.