Author Description

The organization of global production has changed fundamentally in the past few decades. Thanks to reduced costs of communication and transportation and other barriers to trade, many firms have sliced up their supply chains and dispersed their production activities across multiple countries into what are known as global value chains (GVCs). In this study, Ari Van Assche describes the structure and extent of GVCs and examines whether they require a fundamental rethinking of trade policy. He maintains that in some ways, they are simply a natural progression from "trade in goods" to "trade in tasks" that embodies specialization and comparative advantage inherent in standard trade theory. Nonetheless, GVCs mean that exports from a given country contain increasing proportions of import content, and this phenomenon challenges conventional wisdom about the links between trade and competitiveness. One consequence of GVCs is that export-based measures of international competitiveness can be severely biased. To demonstrate this, the author shows that although China appears to have a strong competitive advantage in high-technology products, this is a statistical mirage, because most of the content of those exports was manufactured in industrialized nations. In addition, imports within GVCs no longer necessarily reflect foreign competition. On the contrary, imported components are often highly complementary to domestic tasks in the context of global production networks, and they may therefore signal a competitive strength in the domestic sector. The author notes the example of aviation, where imports may be a reflection of strong domestic demand for components rather than of competition from foreign aircraft manufacturers. To improve Canada's competitiveness in this networked environment, policy-makers need to focus on attracting and retaining the highest-valued activities to Canada, while allowing other tasks to be moved to where they can be conducted most efficiently. However