Asian Economic Policy Review最新文献

Evenett (2024) makes a well-evidenced argument on the capacity of the World Trade Organization (WTO) rules to contain deglobalization. His argument is straightforward. He argues that the WTO rules offer little constraint on state-led deglobalization. He justifies this argument with three sets of evidence. First is the set of evidence from recent high-profile commercial policy episodes such as the US–China trade war, the “weaponization” of medical goods and food exports under the outbreak of the COVID-19 pandemic, and the discriminatory tariff hike invoking national security by the US Trump administration. These episodes show us that governments violated WTO rules without hesitation either overtly in the case of the US–China trade war, or less overtly in the case of export restrictions on medical goods and foods.

The weakness of the WTO rules is, however, not a recent phenomenon. The second set of evidence that Evenett (2024) presents is on commercial policy choices since the Global Financial Crisis of 2008. According to the Global Trade Alert, created by Evenett and his team, commercial policy interventions implemented by about 200 customs territories since 1 November 2008 are traced. The result is striking. The share of world goods trade covered by discriminatory unilateral commercial policy grew over time, and now it is about 80% (Evenett's figure 4).

The third set of evidence is from the WTO tariff schedules of the G20 members. It shows that eight G20 members can legally raise tariff rates by more than 7%, that is, the Smoot Hawley tariff rate, due to the difference between applied tariff rates and bound tariff rates (Evenett's tables 1 and 2). This means that the WTO tariff bindings do not constrain the capacity of these governments to substantively raise tariffs.

The argument of Evenett (2024) aims at demystifying the capacity of WTO rules in controlling member states' commercial policy. If we look at only the recent episodes of deglobalization such as the US–China trade war, we may still expect that the WTO rules will regain their capacity soon after the end of these episodes. However, Evenett (2024) does not allow us to embrace such an illusion, because discriminatory unilateral commercial policy has been growing at least since the Global Financial Crisis of 2008.

Still, we can argue that many governments observe the WTO rules, notably the most favored nation (MFN) principle and tariff binding. For instance, even though governments have cumulated discriminatory unilateral commercial policy since the Global Financial Crisis, they have depended more on non-tariff measures than tariff measures. The fact that eight G20 members can legally raise tariff rates by more than the Smoot Hauley tariff rate does not mean that they actually did so. The fact is that these countries unilaterally lowered the applied tariff rates substantively below the bound tariff rates, while

Whether existing multilateral trade commitments really deter larger trading nations from taking steps that further weaken cross-border commercial ties is assessed here. Evidence from salient commercial policy episodes of recent years is combined with information on the actual leeway available to G-20 members under extant World Trade Organization rules. The upshot is a bleak assessment of the capacity of the existing multilateral trade rule book to rein in any attempt by larger trading nations to “deglobalize” the world economy.

The World Trade Organization (WTO) has not been effective in providing a forum for members to negotiate, monitor, and enforce trade policy commitments. Members failed to conclude its first (and only) multilateral trade negotiation (the Doha Round). Following the deadlock in 2008, veto players, empowered by the consensus working practice, impeded the ability of members to use WTO bodies to discuss ways to address trade tensions. The US has been a key veto player, defenestrating the Appellate Body by blocking new appointments. As Evenett (2024) documents, the danger is clear and present, reflected in the increasing use of policies to support domestic firms, notably subsidies and local content requirements, and recourse to export controls for essential products (medical, food, energy) and advanced technologies.

Evenett argues that governments contemplating large increases in protection are not (much) constrained by WTO commitments. In part this is because of significant policy space to increase protection if deemed necessary (contra the common canard that WTO agreements greatly reduce policy space), and in part because states accept the potential costs of retaliation. A point that deserves greater emphasis is that there is no collective (“WTO”) enforcement of commitments. The threat of withdrawal of concessions (retaliation) by affected trading partners sustains cooperation. Size and power matter in this regard. If a small nation unilaterally greatly increases protection, it can expect retaliation. If trade (exports) matter (more likely for small nations than major economies), WTO commitments may bind more than suggested by Evenett. Conversely, insofar as large powers target each other through subsidies and industrial policies this may benefit other countries by encouraging redirection of investment and GVC activities to their markets. It may also result in lower-cost access to green technologies insofar as global supply expands.

The evidence compiled by Evenett that many of the discriminatory measures post-2009 are less tightly or not constrained by the WTO suggests that the main issue concerns the incentives (prospects) for WTO members to negotiate a new understanding. Reestablishing the Appellate Body will serve little purpose in strengthening the WTO as a bulwark against deglobalization, as seeking to make the Appellate Body operational without a clear path towards updating and filling key gaps in the rulebook will not change the dynamics documented by Evenett. In the unlikely event this could be done it may disincentivize negotiations to address the underlying sources of trade conflicts. Instead, what is needed is to identify the incidence and size of spillovers and consider dispute settlement reforms as one element of a broader effort to revitalize the WTO as a forum for trade cooperation.

While clearly violating substantive and procedural WTO rules, implicit in the unilateral US decision to launch a trade war

The degree of globalization is often assessed using a conventional measure of global trade openness, namely the ratio of world trade in goods to world gross domestic product (GDP). This conventional measure of globalization peaked in 2008 at the onset of the Great Trade Collapse, which is treated by some commenters as a sign that the world has entered an era of delocalization. However, looking only at trade in goods might overlook an important fact that the nature of globalized economic activities is evolving. Baldwin et al. (2024) highlight the contrasting trend that world trade in goods has peaked, or at least plateaued, in 2008 whereas world trade in services has continued to grow rapidly from 1990 to 2019.

The history of globalization is inextricably linked to technological advances, and so will its future. Advances in information and communications technologies (ICT) enable the digitalization of services, leading to increased trade in digitally deliverable services. Also, new data networks, digital tools and platforms enable suppliers to expand their customer base beyond the national boundary and give consumers better access to a wider variety of good quality services at competitive prices. More importantly, ICT facilitates offshoring of intermediate services, which are purchased and used as inputs throughout the economy, including the production of manufactured goods. Interested in such a rising role of services trade, Baldwin et al. (2024) examine trade data on Other Commercial Services (OCS) and the cross-border flows of intermediate services. Based on simple statistics and economic logic, Baldwin et al. develop compelling arguments that services trade will continue to grow faster than goods trade and the future of world trade will lie in services, especially in intermediate services.

Although left aside in the data analysis and discussions of Baldwin et al. (2024), I have some comments regarding the data used in Baldwin et al. and the enabling condition for the expected growth of services trade, both of which should ideally be addressed in future research. First, for the purpose of comparison with goods trade, Baldwin et al. focus on examining services trade of the traditional made-here-and-sold-there type, which falls under Mode 1 of the World Trade Organization (WTO) services trade nomenclature. However, finance, engineering, and other business services supplied through foreign affiliates, which correspond to Mode 3, appear to be increasingly important. According to US Bureau of Economic Analysis,¹ for instance, about 70% of services supplied by US-based firms to foreign persons in 2019 are accounted for by those through the majority-owned foreign affiliates of US multinationals, that is, Mode 3. To better assess the rising role of services in globalized economic activities in general, it would be called for to analyze services tr

The paper by Baldwin et al. (2024) aims to demonstrate that the future of economic globalization lies in services trade as the expansion of merchandise trade has already begun to run out of steam.

Baldwin et al. begin with a narrative of growth of world merchandise trade relative to world income (gross domestic product [GDP]), both in aggregate and by major trading nations and the three main sectors, manufacturing, mining and fuel, and agriculture. The data suggest that the trade-to-GDP ratio peeked around 2008, even though the peak was not equally present in all major nations and all sectors. However, Baldwin et al. have stopped short of probing the underlying drivers of the observed structural change. If the “hyper globalization” during 1985–2008 had been largely driven by cyclical rather than structural factors, it is hazardous to treat the subsequent slowdown as a structural phenomenon. Moreover, the observed trends in the trade to GDP ratio need to be treated with caution because the well-known structural shift in the composition of GDP from tradable production and toward services. Given this structural change, the measured trade-to-GDP ratio is likely to face downward pressure, thus confirming the fear of deglobalization.

My major concern with the inference of trade slowdown is that it has overlooked possible changes in the price structure of global manufacturing trade associated with production fragmentation (vertical specialization). Production fragmentation essentially means restructuring of the production process of a given product among firms located in different regions and countries. In this process, as Young (1928) postulates, increasing returns take place throughout the industry rather than at the individual firm level, generating cumulative, rather than firm-specific, gains from scale economies. Therefore, goods traded within global manufacturing value chain (GMVCs) could experience slower price increases (and hence faster volume growth) compared to the other traded goods.

There is evidence of significant decline, rooted in developments in semiconductor technology, of prices of information technology (IT) products (computers, and data storage and communicating equipment), automobiles and a wide range of other related GMVC products from about the early 1990s (Jorgenson, 2001; Byrne et al., 2016). The relative stability of the real trade-to-GDP ratio after 2008, compared to the sharp decline in the two nominal ratios in Baldwin et al.'s figure 1, is perhaps indicative of this price effect. However, I suspect that, the price index used to deflate the nominal exports does not fully capture the price lowering effect of global production sharing. An analysis using a new dataset, which is carefully constructed to better capture the price effects of GMVC trade, yields the inference that merchandise trade to GDP ratio has not yet pee

While the COVID-19 pandemic raised questions about vulnerabilities to economic shocks resulting from production in global supply chains, the debate has recently shifted to geopolitical risks. Russia's war of aggression against Ukraine has highlighted that trade dependencies in international production networks can be “weaponized” (Farrell & Newman, 2022). Escalating geopolitical tensions between the USA and China hint at a potential “bifurcated global economy” (Teece, 2022).

However, contrary to the prevailing narrative, compelling evidence of widespread decoupling or deglobalization remains elusive. Inter-country input–output tables that track flows of value added across countries at the aggregate level reveal a slowdown in the fragmentation of production since the 2008–2009 Financial Crisis (Jaax et al., 2023). Yet, globalization has not regressed. Production fragmentation persists at historically high levels, even after the COVID-19 pandemic. However, East Asia presents a nuanced picture with China moving toward more domestic supply chains since the mid-2000s. This trend can be explained by a decline in processing trade and more exports of branded products following the upgrading of Chinese value chains. It is therefore important to disentangle recent trends related to COVID-19 and geopolitical tensions from more structural trends.

The paper by Ando et al. (2024) is one of the first to look at some evidence of supply chain decoupling in East Asia, with a focus on machinery international production networks. Ando et al. confirm that, when looking at aggregate trade data, there is no significant change in exports and imports in the region, despite the recently introduced trade controls that affect this industry. However, disaggregated trade data, coupled with econometric analyses accounting for COVID-19-induced shifts, reveal the negative impact of some US export restrictions on high-tech goods. The impact on Japanese exports to China is particularly strong in the case of wireless communication equipment.

A notable conceptual contribution from Ando et al. is the distinction between “defensive” and “offensive” decoupling. Defensive decoupling encompasses policy measures that are aimed at mitigating the impact of sudden disruptions in the supply of imported products from strategic rivals. The debate on reshoring, “friend-shoring” or diversification of supply to reduce trade dependencies is often focused on this type of decoupling. Leaving aside the case of reshoring (which is generally not a realistic option), defensive decoupling is more likely to lead to a re-organization of supply chains for domestic firms (still with important costs). Conversely, offensive decoupling entails measures that are designed to restrict access to technologies and products in nonfriendly countries and that directly hurt exports of domestic firms and firms in partne

Ando et al. (2024) examine how the tightening of export control regulations by the USA in recent years has affected the exports of three East Asian countries – Japan, South Korea, and Taiwan – to China. Given that China is the most important trading partner for these three countries, Ando et al.'s paper focuses on a very important issue for the region.

Ando et al. closely examine the impact of the US Foreign Direct Product Rule (FDPR) on Japan's exports. Many interesting results are presented, but I would like to highlight two in particular. First, Ando et al. find that the strengthening of the US FDPR significantly reduced Japan's exports of related products to China. Interestingly, their estimation results (Ando et al.'s table 2) imply that it is the more semiconductor-intensive, that is, more high-tech, products that are negatively affected, while exports of less high-tech products may have increased. Since the US FDPR specifically targets high-tech products, the finding suggests that the measure is having the intended effect.

Second, in terms of the size of the impact, Ando et al. estimate that the reduction of Japanese exports to China due to the FDPR amounted to 3.3% of the total value of Japanese exports to China in 2019. Accurately measuring the impact of export controls is very difficult, and the 3.3% estimate may be a slight overestimate. However, compared to the increase in exports from Japan to China (in Japanese yen terms) from 2014 to 2019 of about 10% over the 5-year period, this 3.3% impact is too large to ignore.

While Ando et al.'s attempt to quantitatively examine the impact of export controls is an important first step, there are still a large range of issues that have not yet been addressed. I would like to highlight key issues that warrant attention in the future. First, it is very difficult to identify the scope of export controls and quantitatively measure the impact of export controls. For example, Hayakawa et al. (2023) also show the negative impact of the tightening of the US FDPR, but their estimate of the size of the impact (0.2%) was considerably smaller than Ando et al.'s (3.3%). Although the two results cannot be compared directly because of the different empirical methods and time periods, this difference in the results may partly reflect the difficulty of quantifying the impact of export controls. Nevertheless, it is worth trying to investigate the impact, and accumulating empirical results will help us get closer to the true picture.

Second, I would like to highlight the importance of micro-level studies. Export controls may severely affect specific firms that heavily rely on exports of the products subject to the regulations. For example, it has been reported that some Japanese firms that had heavily relied on exports of hydrogen fluoride to Korea experienced a large decline in exports and profits

Supply chain decoupling in the US–China confrontation has generated serious uncertainties for private businesses. This paper focuses on machinery international production networks in East Asia and tries to find quantitative evidence on supply chain decoupling by using international trade statistics, particularly from the viewpoint of middle powers such as Japan. While data on the sectoral level of trade do not show any clear evidence of supply chain decoupling, some specific US export controls indeed affect international transactions when examined at a finely disaggregated level. We econometrically measure the effect of some of the US policies on Japanese exports to China. The recent strengthening of US export controls related to supercomputers and advanced integrated circuits is likely to generate further effects. Nevertheless, the supply chain decoupling seems to end up as a partial one, and a large portion of International Production Networks (IPNs) may remain active. In conclusion, the paper briefly discusses the policy implications of the analysis.