Global Value Chains in the Current Trade Slowdown

Real growth in global trade has decelerated significantly since its sharp recovery in 2010. Year-on-year growth in global real trade1 decelerated from 13.3 percent at the end of the first quarter of 2010, to 9.9, 3.1, and 0.5 percent at the end of the first quarters of 2011, 2012, and 2013, respectively, while picking back up to 3.9 percent in the year leading up to the fourth quarter of 2013.2 This aggregate deceleration in global trade includes absolute declines in real trade for many product categories and regions. In the wake of the Great Trade Collapse of 2008–9, understanding of the behavior of trade in slowdowns has improved. Among the many explanations offered for the Great Trade Collapse, including explanations related to uncertainty, trade financing, and new protectionist measures by governments, there has been a significant focus on whether the emergence of global value chains (GVCs) in international trade, and their behavior, are a contributing factor in trade slowdowns.3 Relationship between GVCs and Trade Decelerations GVCs involve trade in goods that have multiple production stages that take place in many different countries (that is, “production fragmentation ” or “slicing up the value chain”) and in which multiple imports and exports of intermediate goods are necessary to produce a final good, which may also be exported. Since the emergence of the North American GVC in automobiles in the 1960s and the East Asian electronics GVC in the 1970s, the role of GVCs in international trade has become more important and has attracted increasing at-tention. There are several potential reasons why GVC trade may behave differently. First, there is a crude statistical argument for a relation-ship between GVC trade and slowdowns, arising from the fact that there are more trade flows in GVC trade than in non-GVC trade. If an exported good is produced entirely within the exporting country, and there is a reduction in demand, then one trade flow disappears. But if the exported good is produced with an imported input, there are two trade flows (the import of the input and the export of the final good), an