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Trade Policy Implications Of Global Value Chains by ExportPortal: 3:39pm On Aug 01, 2022
When goods and services cross borders, they become part of a global value chain (GVC), which eventually reaches people all over the world. Trade is being driven even more by international strategies of companies that use foreign outsourcing and direct investment and do their work wherever they can find the skills and materials they require at a competitive price and quality.

As trade policy changes, here are some of the most vital impacts on GVCs:

The Transformation of World Trade

Trade officials must assess the reality of GVCs. Over the past two decades, there has been a significant shift in international trade. Due to the changing structure and trade patterns, traditional trade policy objectives have been re-evaluated.

Current Trade Comprises Capital and Intermediate Products

When we consider global trade, the conventional assumption is that each country exports its manufactured goods to customers in another country—this sort of trade accounts for only one-fourth of total trade in commodities and services. Today, three-quarters of global trade consists of enterprises purchasing production inputs and investment commodities or services.

Protection against these imports raise production costs and make it harder for a country to compete in export markets and take part in GVCs. Also, currency interventions that try to give exporters a competitive edge by making their currency cheaper lose their point because the cost of more expensive imported inputs, capital goods, or services cancels out at least some of the export value generated from a cost-effective currency.

Increased Globalization of Trade

Aside from preferential trade agreements, which have become more common since 1995, businesses have increased their use of imports from emerging economies, increasing the share of extra-regional value added to exports from the world's four major continents. Only in the European Union (EU) does intra-regional value-added outnumber extra-regional value-added.

Elimination of Border Tariffs

After more than 50 years of trade liberalization, most manufactured goods in developed economies have low nominal tariffs, and the general trend in developing countries has also been toward lower tariffs. However, in a world [url=https://econpapers.repec.org/scripts/redir.pf?u=http%3A%2F%2Fwww.cepr.org%2Factive%2Fpublications%2Fdiscussion_papers%2Fdp.php%3Fdpno%3D11044;h=repec:cpr:ceprdp:11044]dominated by GVC[/url]s, things are not straightforward: tariffs and other border protection measures accumulate when intermediate inputs cross borders several times.

Trade policy is not like waving a magic wand when it comes to economic policy. Other policies are needed to benefit from GVCs for employment and income growth for everyone. A successful integration strategy must take into account the specificities of each country's economy and the challenges faced by businesses and workers as GVC participation rises.

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#ExportPortal #tradepolicy #globalvaluechains #globalchain #productionsector

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