Trade Redirection in Global Supply Chains

We define trade redirection in global supply chains as the reshipment of value added imports by the last but one country in the chain to their final destination. The redirector is either the final producer producing final output exports or the last exporter of intermediate output to the final producer producing for domestic use. We completely characterize trade redirection in terms of value added trade in global input-output models making use of the concept of intermediate value added exports up to the production gate of the final producer, factory gate exports for short. From the GTAP-datasets we obtain global input-output systems for the years 2001, 2004 and 2007. Empirical results for an aggregate system comprising twelve industries and twelve regions indicate that redirection for foreign final output use at home is slightly larger than redirection via final output exports. Redirection via final output exports (type I redirection) is most important in manufacturing while redirection for foreign final output use at home (type II redirection) is especially important for the services industries Taking both types together, redirection amounted to almost one fifth of global value added exports in the period 2001-2007. We reveal recent developments in global supply chains via an analysis of the developments in trade redirection at the level of end-use industries, covering all redirection of intermediate imports by the last but one country in the chain. We conclude that factory gate exports are a useful concept to characterize the structure of international production networks (as revealed by their hub and spokes relationships), to assess whether a country’s trade is relatively upstream or downstream and to measure the value added content of trade.