COVID‐19 and global value chains: A discussion of arguments on value chain organisation and the role of the WTO

Abstract

We conduct an in‐depth analysis of the reasons for changes in global value chains as a result of COVID‐19 both from a positive angle, analysing expected changes in the behaviour of firms, and from a normative angle, assessing the different arguments for policy interventions by governments. The analysis generates three main conclusions. First, the COVID‐19 pandemic could contribute to diversification of sources of supply whose extent will vary by sector depending on the costs of value chain reorganisation. The pandemic, by contrast, is not likely to contribute much to re‐shoring, the return of manufacturing activities to industrialised countries, which is more likely to be driven by pre‐existing trends such as rising factor costs in emerging countries, increasing uncertainty about trade policy, and robotization and automation of production. Second, the pandemic has led to increased attention to the provision of essential goods in situations of crisis. Third, the largest risk for the global economy in the aftermath of the pandemic is a move away from open, non‐discriminatory trade policies, which would jeopardise the large benefits of open trade regimes in the current global economy characterised by scale economies, innovation spillovers, and a global division of labour.