Trade patterns and global value chains in East Asia: - IDE-JETRO

Trade Patterns and Global Value Chains in East AsiaIntroductionThe geographical fragmentation of production hascreated a new trade reality. Often referred to asglobal value chains or vertical specialization, thisfragmentation deepens the interdependency of traderelations and has many implications for how weunderstand trade policy. This book sheds light on thenature of this interdependency, and the contributionof trade to national economies. It illustrates theconjunction of technical, institutional and politicalchanges that led to the emergence of production andtrade networks in East Asia, including their impact ontrade patterns.As shown in the diagram, the rise of global valuechains results from the conjunction of several factors.It started with a change in the consumption models ofindustrialized economies, which found a supply potentialin some developing countries. The book also showshow this development approach, initially centred on afew leading economies that had adopted an export-ledindustrialization strategy, enabled a larger number ofregional partners to embark on an industrialization paththat had deep implications for their domestic economies.This structural shift in the functioning of internationaltrade requires, in turn, that the tools used to analyse itsevolution, in particular trade statistics, be adapted.International demandDevelopment ofinfrastructureand trade policyIndustrial processing zonesOffshoring-outsourcingstrategies and FDIGlobal Value Chains (GVCs)and world tradeIncrease of trade inintermediate goodsNeed for new statisticalmeasures of internationaltradeDomestic/territorialimpact of GVCsThe first chapter recalls that globalization has gonethrough several phases; as a matter of fact, the historyof mankind is often closely related to the evolution oftrade. In former times, when transportation was difficult,international trade was limited to the most expensiveitems. With the industrial revolution in the 19th century,mass production and improved transportation madeinternational trade much easier, and most goods becametradable. More recently, a new phenomenon, “globalmanufacturing”, is again boosting the volume and diversityof products being exchanged. But it is also changing thevery nature of international trade. Global manufacturingis characterized by the geographical fragmentation ofproductive processes and the offshoring of industrialtasks.The increasing fragmentation of value chains has ledto an increase of trade flows in intermediate goods,especially in the manufacturing sector. In 2009, tradein intermediate goods was the most dynamic sectorof international trade, representing more than 50 percent of non-fuel world merchandise trade. This tradein parts, components and accessories encourages thespecialization of different economies, leading to a “tradein tasks” that adds value along the production chain.Specialization is no longer based on the overall balanceof comparative advantage of countries in producing afinal good, but on the comparative advantage of “tasks”that these countries complete at a specific step alongthe global value chain.4