Working Paper: NBER ID: w31820
Authors: Richard Baldwin; Rebecca Freeman; Angelos Theodorakopoulos
Abstract: Supply chain problems, previously relegated to specialized journals, now appear in G7 Leaders’ Communiqués. Our paper looks at three core elements of the problems: measurement of the links that expose supply chains to disruptions, the nature of the shocks that cause the disruptions, and the criteria for policy to mitigate the impact of disruptions. Utilizing global input-output data, we show that US exposure to foreign suppliers, and particularly to China, is ‘hidden’ in the sense that it is much larger than what conventional trade data suggest. However, at the macro level, exposure remains relatively modest, given that over 80% of US industrial inputs are sourced domestically. We argue that many recent shocks to supply chains have been systemic rather than idiosyncratic. Moreover, systemic shocks are likely to arise from climate change, geoeconomic tensions, and digital disruptions. Our principal conclusion is that concerns regarding supply chain disruptions, and policies to address them, should focus on individual products, rather than the whole manufacturing sector.
Keywords: supply chain; US economy; foreign suppliers; systemic shocks
JEL Codes: F0; F13; F14; F60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US exposure to foreign suppliers, particularly China (F10) | underestimation by conventional trade data (F14) |
| systemic shocks (F41) | impact on supply chain resilience (F69) |
| climate change and geopolitical tensions (Q34) | systemic shocks (F41) |
| systemic shocks (F41) | interconnectedness of supply chain issues (L14) |
| policy responses should focus on individual products (D18) | effectiveness of interventions (I24) |