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

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Trade Patterns and Global Value Chains in East Asiato de facto economic integration were first observed inJapan, and then gradually shifted towards China. Thechapter shows the growing role of China and the relativedecline of the United States and Japan as productionhubs. Other emerging East Asian economies have alsosignificantly increased their degree of integration into theregional production system, contributing to strengtheningeconomic interdependency in the Asia-US region.The diversity and complementarity of the regionalproduction system also fosters specialization when itcomes to trade in tasks. Reflecting their particular rolesin global value chains, some countries, like Japan or theRepublic of Korea, specialize in the export of productsinvolving high- or medium-skilled labour, while others,such as China or Viet Nam, focus on low-skilled, labourintensiveactivities. When considering the totality ofthe value chain, from conception to production andconsumption, developed economies like the UnitedStates tend to create employment at both ends of thequalification spectrum, from highly-skilled engineersand professionals to low-skilled retail workers; however,low-skilled manufacturing tasks are outsourced. Thenet balance of employment is also clearly influenced bythe overall macroeconomic situation of each economy;net job creation attributable to trade is much higher inexport-led surplus countries than in inward-orientedones, especially when the latter run structural tradedeficits.An examination of the historical evolution of productionnetworks in the region, which is the purpose of ChapterVII, shows how Asian economies have becomeinterconnected with each other and with the US market.In 1985, there were only four key players in the region:Indonesia, Japan, Malaysia and Singapore. In the 1990s,the Republic of Korea, Chinese Taipei and Thailand alsoemerged as important links in the production network.Japan was extending its supply chains, while outsourcingfrom the United States was also strongly entering thepicture. After 2000, the emergence of China altered theregional network, and by 2005, the network’s centre ofgravity had clearly shifted there. The intermediate goodsimported by China come through relatively long andcomplex supply chains, characterized by a high degreeof fragmentation and sophistication. The competitivenessof Chinese exports is not only attributable to its lowproduction costs, but also to the complex intermediategoods imported from other countries, be they from Asiaor the rest of the world.Chapter VIII is dedicated to the mapping of tradein intermediate goods, which constitutes the “bloodstream” that irrigates global and regional supply chains.Trade in intermediate goods now dominates worldtrade in non-fuel merchandise. While Europe is still thebiggest trader in intermediate goods, Asia has beenrapidly closing the gap, and is now a close second.While intermediate goods constitute more than 60 percent of Asia’s total imports, Asia tends to export morefinal goods composed of the imported intermediateones. This regional characteristic, inherent in the region’srole as “Factory Asia”, is not equally displayed by eachcountry. Some economies, like China, India and VietNam, have distinctly higher shares of intermediate goodsin their imports than in their exports, while the opposite istrue for the Republic of Korea, Japan and Chinese Taipei.Not only has trade in intermediate goods increased, butthese goods are also increasingly complex.Some trade analysts have argued that the change fromtrade in goods to trade in tasks implied by the operationof global value chains is comparable to a paradigm shift inthe analysis of international trade. Because new conceptsalso involve new measurements, Chapter IX exploressome of the changes required to complement existingstatistical indicators. The complexity of productive andcommercial relationships has blurred the relevance ofa series of macroeconomic indicators, such as bilateraltrade balances. The concept of “country of origin” isbecoming increasingly difficult to apply to manufacturedgoods, as the various operations that comprise them,from the design of a product to the making of itscomponents, their assembly and related marketing, arespread across the world. Nowadays, products are more“made in the world” than “made in” a specific country.One way of taking into account the fragmentation ofvalue chains and providing a decomposition of grossexports by domestic and foreign origin is by measuringthe value added imbedded in exports.Measuring trade in value added uses both trade statisticsand international input-output tables, such as thosedeveloped by IDE-JETRO, to separate the domestic contentof an export from the cost of the imported components.This methodology offers a new perspective for tradeanalysts, as it dramatically re-evaluates the importance ofsome economies as “countries of origin”. The result is thatthe absolute value of some bilateral trade imbalances isreduced, notably that of China and the United States, whileoverall global balances remain untouched.6
Vertical specialization, an indicator compiled throughinput-output tables, allows for an assessment of theforeign content included in exports and hence the tradeoccurring within international production chains. Thelevel and growth of vertical specialization do not onlyvary substantially among the Asian economies but alsowithin sectors.Finally, Chapter X demonstrates, using China as anexample, how an export-led development strategy cantrickle down to the rest of the domestic economy. In2010, China became the second-largest economy inthe world, surpassing Japan in terms of nominal grossdomestic product. This was the result of the rapideconomic growth which followed the launch of theReform and Open-door policy in 1978. The coastalregions of China enjoyed particularly strong growthas a result of preferential development policies heavilyorientated towards exports. However, their successhas led to significant regional disparities. A territorialrebalancing has been under way since the early 2000s,and the centre of gravity of development has shiftedto the western regions and the North East. The nextchallenge for China is to reduce the regional incomeinequalities and move from an export-dependenteconomy to a balanced system based more on domesticdemand.A glossary and a number of technical annexes at the endof the publication provide additional information on theterms and technical points developed in the differentchapters.7
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Page 11 and 12: I. From massdemand to globalsupply
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Page 25 and 26: China’s customs trade figures sho
Page 27 and 28: Figure 4Hong Kong’s (China) impor
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Page 41 and 42: B. Applied tariffs in Asia are low
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Page 45 and 46: D. Tariffs in Asia vary significant
Page 47 and 48: Figure 9Effective protection rate (
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Page 55 and 56: Figure 4FDI inflows received by sel
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C. Foreign direct investment: From
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EndnotesI. From massdemand to globa
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I. From massdemand to globalsupply
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Figure 1Industrial specialization o
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Figure 3The skyline charts of the c
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The Republic of Korea, Chinese Taip
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Figure 5Development of cross-nation
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Table 2 shows disaggregated results
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Figure 7Labour content of net trade
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Figure 1Evolution of regional produ
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Due to their relative size, other e
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B. Intermediate goods drive world t
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As shown in Figure 6, intermediate
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D. Asia imports more intermediate g
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E. Intra-Asian trade in intermediat
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G. Towards more complex intermediat
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EndnotesI. From massdemand to globa
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The increasing internationalization
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