This study analyzes the widespread diffusion of unilateral trade policies and change in trade structures. Chapter 2 examines the trend in unilateral trade policies, the economic and trade uncertainty they generate, and the direct and indirect evidences of their diffusion. Unilateral trade policies are diverse in measures and unilaterally imposed on partner countries, hence increasing uncertainty in the international trade environment. In the case of the United States, after the Trade Preference Extension Act of 2015 came into force, anti-dumping and countervailing duties were actively used and higher rates were growingly imposed. Unilateral trade policies are spreading internationally. Non-tariff measures including anti-dumping, countervailing measures, SPS and TBT measures are increasing. Moreover, both developing and developed countries are adopting trade-disruptive measures and these are rapidly increasing. Uncertainty grows with the diffusion of unilateral trade policies, in particular the average value of the World Uncertainty Index almost increased to four-fivefold compared to 1990.
Chapter 3 discusses changes in trade structures and factors reshaping the global value chains (GVCs). It also examines changes in import market shares by countries and industries, and it estimates the trade diversion effect due to unilateral trade policies. International trade increased rapidly with the rise of free trade agreements and the expansion of GVCs and so on, but has slowed downs after the global financial crisis. Between 1995 and 2007, the trade growth rate was on average 9% per year; after the financial crisis, it slowed to around 4% per year. This trend can also be found among developed and developing countries. Intermediate goods also grew by 19% on average per year from 2002 to 2007, and this growth rate decreased to 2% on average per year from 2010 to 2019. GVCs are being reorganized as developing countries become consumer markets, the technology gap between developed and developing countries diminishes and the development of digital technology decreases developing countries’ labor cost competitiveness. Section 2 of the chapter investigates changes in import market shares by industry for North America (United States and Canada), China, ASEAN and India, Europe and Central and South America between 2015 and 2019. First, the change in import market shares for the United States and China clearly reflects trade disputes between the two. China’s market share in the North American import market decreased across all sectors, whereas ASEAN and India’s share increased across all sectors excluding mining. However, China still accounts for a large portion of North America’s market in manufacturing sectors including electronics. Second, North America’s share in China’s import market decreased across all sectors. In particular, its share decreased around 12% in the agriculture, forestry and fisheries sector, around 10% in the vehicles sector and around 5% in the steel, nonferrous metals sector. Section 3 takes into account the results of the previous sector and analyzes the trade diversion effect due to the US-China trade conflict. Most of the literature focuses on the decrease in imports from China due to the United States’ imposition of tariff measures. This study pays attention to import diversions from China to other countries. If the trade diversion effect is big, it is hard to expect improvement in United States’ trade balance, and the effect of protecting domestic industries and creating jobs would be weak. According to our analysis, the trade diversion effect in the United States’ import market is statistically significant, especially for intermediate goods.
Chapter 4 investigates the changes in trade structure due to unilateral trade policies by constructing a theoretical model. GVC structure is incorporated in the trade model to trace the ripple effect of unilateral trade policies. The Trade Uncertainty Index is used as a proxy for unilateral trade policies and its tariff equivalent is estimated. This is then used as an exogenous shock for the change in trade cost. How the rise in trade costs due to the proliferation of unilateral trade policies affects the trade structure of the world, regions and that between countries is examined. The change in consumption goods, intermediate goods, value-added export, GVC indices is then presented. If trade cost rises due to shocks from the United States, the share of total exports and intermediate exports out of the world’s total production both decrease. Most of the decrease can be attributed to the change in total and intermediate exports of the three North American countries (United States, Mexico, Canada). Meanwhile, the share of value-added exports out of total exports increases. This is due to the increase of North American countries’ share of value-added exports unlike that of other countries such as Korea, China and Japan, European countries and so on. GVC indices also changed for those three countries with the United States’ GVC participation rate showing particular increase. The global shock due to unilateral trade policies is stronger than shocks from the United States and has different ramifications. All regions experience a decrease in their share of consumption goods and intermediate goods’ exports and the majority of countries and regions see a drop in value-added exports’ share. In conclusion, GVC participation rate of the world declines. This means that the proliferation of unilateral trade policies works against the decades-long trend of GVC expansion, and it intensifies the rearrangement of the GVCs, negatively affecting total, intermediate and value-added export structures.
The last chapter presents policy implications based on the analyses from former chapters. As the Covid-19 pandemic drags on, the global economy will not easily recover in a short period of time. It is estimated that the intensification of uncertainties in the trade environment due to trade conflicts between China and the United States, and the proliferation of unilateral trade measures will have important effects on the change in trade structures, including the reorganization of the GVCs. Followings are some suggestions the Korean government and firms could consider: (1) strengthen the nation’s ability to respond to GVC rearrangements, (2) improve capacity to generate value-added in exports, (3) continue efforts to negotiate free trade agreements and improve their contents, (4) participate actively in multilateral trade negotiations and strengthen collaboration with middle trade powers, (5) strengthen monitoring of the global trading system, and (6) continue efforts to improve competitiveness at the firm level.