International Trade and Value Chains
A country's level of development plays a significant role in shaping its domestic supply chains and can also contribute to the expansion of global value chains. Many experts suggest that such expansion can result in more sustainable and resilient value chains, as well as enhance the productivity and efficiency of production structures. However, there are also perspectives advocating for a reevaluation of these global supply chains, emphasizing the importance of supporting domestic production through potential trade barriers. In an effort to explore these complex dynamics, C-FARE invited three distinguished experts to engage in a discussion on how trade and the implementation of trade barriers could influence the US economy.
Will Martin – Employment & Trade in Agricultural Value Chains
Will Martin’s presentation focused on the evolution of agricultural value chains as economies develop, emphasizing the shift from subsistence-based farming to specialized trade and industrialized food systems. In low-income economies, most agricultural processes, including food preparation and input production, occur on the farm. However, as incomes rise, specialization and trade expand, with off-farm processing, food services, and the trade of processed products becoming dominant. Martin highlighted the role of the FAO’s agrifood systems framework, which includes agriculture, processing, distribution, and even non-food outputs, demonstrating the interconnectedness of agriculture with broader economic activities.
To measure these dynamics, two main approaches were discussed: the activity approach, which focuses on value-added outputs across sectors, and the final demand approach, which traces factor inputs through input-output (IO) techniques. Using GTAP data and supplementary IO tables, Martin and his team analyzed the value-added contributions of agriculture, food processing, and food services, with a focus on gender-disaggregated labor data. Initial findings show that in high-income regions, food processing and services vastly outweigh the economic contribution of primary agriculture. Martin concluded by stressing the importance of detailed data for understanding the full scope of agri-food value chains, particularly their impact on employment, wages, and trade.
Ian Sheldon – Trade Policy and Value Chains
Ian Sheldon’s presentation explored the economic impact of recent trade policy interventions on global value chains, particularly in agriculture. He highlighted the phenomenon of tariff escalation, where tariffs on processed goods are higher than those on raw materials or intermediate inputs. This structure reflects political and economic motives: downstream industries lobby for protection while seeking cheaper inputs. Recent research, including studies by Pol Antràs and colleagues, suggests that tariff escalation might have benefits in certain contexts, such as fostering economies of scale in downstream industries. However, the recent U.S.-China trade war demonstrated that these potential gains were undermined by retaliatory tariffs and increased costs for intermediate goods, leading to significant disruptions in global value chains.
Sheldon also discussed the emerging role of environmental policies, such as the European Union’s Carbon Border Adjustment Mechanism (CBAM), which targets carbon-intensive imports like fertilizers. These policies aim to prevent "carbon leakage" but may introduce new distortions in global value chains, particularly in agriculture. For instance, CBAMs could affect the production and trade of agricultural equipment and fertilizers, raising costs and creating inefficiencies. Sheldon emphasized the need for further research into how agricultural value chains adapt to both trade and environmental policy shifts, suggesting that such studies could yield insights into mitigating negative economic and environmental impacts.
Andrew Muhammad – Trade War Fallout and Value Chains
Andrew Muhammad’s presentation provided a deep dive into the impact of the U.S.-China trade war on the U.S. forestry sector, particularly focusing on the value chain of logs, lumber, and finished wood products like furniture and flooring. He highlighted how U.S. forestry exports, a top-tier contributor to agricultural trade, became entangled in the trade war’s tariff impositions. These tariffs disrupted the flow of U.S. logs and lumber to Chinese manufacturers, who traditionally processed these materials into furniture for both domestic use and global export. The compounding tariffs on both raw materials and finished goods drastically reduced U.S. hardwood exports to China by 45% in the immediate aftermath of the trade war, with major categories such as oak, cherry, and maple experiencing significant declines.
Muhammad also discussed the broader shifts within the global furniture manufacturing landscape. As Chinese wages rose, manufacturers began relocating to Southeast Asia, particularly Vietnam, a trend that was accelerated by the trade war. This shift resulted in declining imports of Chinese-made furniture into the U.S. and increasing imports from competing countries. Furthermore, emerging European climate policies, such as the EU’s deforestation-free supply chain initiative, are poised to further impact the global wood products supply chain, adding new challenges for traceability and sustainability. These developments underscore the complex interplay between trade policy, global manufacturing trends, and environmental regulations in shaping the future of the forestry sector.
This program is supported in part by the Agricultural and Applied Economics Association and the US Department of Agriculture’s Economic Research Service, and the National Agricultural Statistics Service.
Those who register but cannot attend our webinar can always view a recording of it later at the council’s YouTube channel.