Foreign trade barriers and jobs in global supply chains

• Published date: 01 March 2019
• Author: Stefan KÜHN,Christian VIEGELAHN
• Date: 01 March 2019
• DOI: http://doi.org/10.1111/ilr.12132

International Labour Review, Vol. 158 (2019), No. 1

Copyright © International Labour Organization 2019

Journal compilation © International Labour Organization 2019

* ILO Research Department, emails: kuehn@ilo.org; and viegelahn@ilo.org. The authors

acknowledge the comments made by various ILO colleagues, in particular Uma Rani and David

Cheong, and the participants in the CEP Workshop on Employment Effects of Services Trade

Reform (Geneva, November 2015). They would also like to thank three anonymous referees

from the International Labour Review and the ILO Research Paper series for their comments.

An earlier version of this article was published in March 2017 as ILO Research Paper No. 19.

The authors gratefully acknowledge the excellent research assistance provided by Takaaki Kizu.

Responsibility for opinions expressed in signed articles rests solely with their authors,

and publication does not constitute an endorsement by the ILO.

Foreign trade barriers and jobs in global

supply chains

Stefan KÜHN* and Christian VIEGELAHN*

Abstract. This article uses ILO global supply chain job estimates to study the

impact on domestic jobs of foreign barriers to trade in goods and services. Em-

pirical analysis largely conrms predictions derived from a theoretical model cali-

brated to WIOD data for 2000 and 2 011. Barriers to trade in manufacturing and

services are both found to have a cross-border impact on jobs in their own sector

and spill-over effects in other sectors, the latter becoming stronger over time. This

article shows the labour market consequences of the increased interconnectedness

of countries and sectors through global supply chains, which suggests that trade

policy can have signicant external effects on foreign labour markets.

The global fragmentation of production has increased the interconnected-

ness between economic actors in different sectors across borders through

global supply chains, where different tasks of a production process are per-

formed in different countries. In such an environment, trade policy has an im-

pact not only on rms in the sector that is protected from import competition

but also on foreign rms that are targeted by the trade policy, their suppli-

ers, and the suppliers of those suppliers along the production chain. The trade

literature that makes use of computable general equilibrium (CGE) models

takes these cross-border and cross-sector effects into account, on the basis of

international input–output tables. These tables specify the inputs that a sector

in one country contributes to the outputs of another sector in another coun-

try. This allows CGE models to quantify the likely impact of a trade policy

applied by one country to trade ows of a particular sector on all other sec-

tors and countries that are factored into the model. However, CGE model

International Labour Review138

estimates are highly sensitive to modelling assumptions

1

and parameter choice

(Valenzuela, Anderson and Hertel, 2008), especially when investigating trade

barriers other than tariffs (Fugazza and Maur, 2008). The actual impact of a

trade policy can only be determined through an ex post empirical analysis.

The recent empirical trade literature has mostly used rm-level data

to assess the impact of trade policy, testing the rm-level predictions of the

so-called “new” new trade theory, originating in the seminal work of Melitz

(2003). This literature has traditionally focused very much on the impact of

domestic import tariffs on domestic rms, initially focusing on rms in the in-

dustry that is protected from import competition. In recent years, an increasing

number of studies have also considered the impact of tariffs on downstream

rms that import inputs that are subject to such tariffs, though still focusing on

domestic rms.2 Only a few studies have investigated the external impact of

trade policies on rms located in other countries. For example, Vandenbussche

and Zarnic (2008) study the impact of safeguard tariffs applied by the United

States to steel imports from Europe, and detect a sizeable negative impact on

the mark-ups of European steel producers. Rovegno (2013) studies the impact

of foreign anti-dumping tariffs on exporters in the Republic of Korea and nds

a positive impact on the unit values of targeted exports, suggesting that the

tariff is not absorbed by foreign exporters but passed on to consumers.3 None

of these studies on the domestic or external impact of trade policy, however,

take into account its impact on the upstream suppliers of affected rms. Such

rm-level studies are lacking mainly due to data constraints, as information

on rm-to-rm supplier relationships is absent from most rm-level data sets.

The purpose of this article is to assess the external impact of one coun-

try’s trade policy on the number of jobs located in another country. The art-

icle takes into account effects along the entire supply chain and jobs that are

directly or indirectly related to the trade ows affected by the trade policy.4

While the literature that makes use of CGE models considers supply chain

linkages, this literature typically only provides evidence on the impact of trade

1 For instance, some of the CGE literature builds on the full-employment assumption,

restricting the analysis to relative price and employment changes between sectors, with total

employment remaining xed. Such an assumption is popular as unemployment is considered

to be a xable market failure in the neo-classical view. Moreover, the relaxation of the full-

employment assumption requires the model to have an alternative “closing condition”, which

could be an equally strong assumption.

2 See, for example, Amiti and Konings (2007), Kasahara and Rodrigue (2008), Halp-

ern, Koren and Szeidl (2015), Goldberg et al. (2010) and Vandenbussche and Viegelahn (2016).

3 Brambilla, Porto and Tarozzi (2012) use labour force survey data to study the impact of

one country’s trade policy on another country. They show that the United States’ anti-dumping

duties applied to catsh imported from Viet Nam have had a negative impact on the labour

incomes of Vietnamese catsh farmers.

4 For example, a tariff on exports of mobile phones will not only affect the mobile phone

exporter, who operates in the manufacturing sector, but it will also affect rms that supply in-

termediate inputs for the production of the mobile phones, which may include service-sector

rms. Tariffs that are levied on trade in manufactured goods thus do not necessarily have an

impact only on manufacturing jobs; they can also have an impact on jobs in the service sector.