Trade tensions, global value chains, and spillovers

Europe is deeply integrated into global value chains, and recent trade tensions raise the question of how European economies would be affected by the introduction of tariffs or other trade barriers. About 70 percent of total European exports are linked to forward and backward supply chains. Therefore, shocks affecting existing trade flows between the major trade hubs - the United States, China, and Germany - could affect European economies through those supply chains. This paper estimates the impact of trade shocks and growth spillovers using value-added measures to get a more accurate picture of the associated costs across European countries. By measuring the impact of trade shocks through the lens of value-added exports instead of gross exports, we get a better understanding of how trade tensions weigh on activity. This distinction is particularly important for Europe, which has the largest difference between these measures as a result of extensive cross-border supply chains, both within and outside the region