In a world composed of global value chains, headline global trade data can mask the truth about how much exports are actually benefiting a country, according to professor Xiao Jiang from Denison University. Here’s why: If a country’s imports of semi-finished goods contain significant high-skill labor content, that country will lose will lose its domestic share of value-added activities. That means a loss of economic power. Developing countries should therefore engage in global value chains in a “selective, careful, and intelligent way” in the face of market power of foreign-led, high value-added firms. They also need government trade policies that will help prevent “value-added erosion,” says Jiang. Through collective bargaining, unions of small manufacturers could also better “counter the asymmetric power structure” and protect vulnerable workers.
Originally published: Institute for New Economic Thinking by Xiao Jiang (September 28, 2017)