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Chinese supply chain shocks

Khalil, Makram and Weber, Marc-Daniel (2021): Chinese supply chain shocks.

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Abstract

In structural vector autoregressive models of US and euro area manufacturing, we use sign restrictions to identify shocks that alter the frictions to Chinese supply chain trade. We find a quantitatively significant role of such shocks for the decline of US manufacturing output at the height of the Sino-American trade tensions in 2019. At the beginning of the Covid-19 pandemic in early 2020, the results point towards large spillovers from the shutdown in China to manufacturing in the US and the euro area. Moreover, during the recovery in 2020 and 2021, positive Chinese supply chain shocks related to the shift of preferences towards goods with a large China valued-added content played a role. Interestingly, the impact of China-specific trade shocks is not limited to manufacturing sectors that are highly exposed to China. Furthermore, negative Chinese supply chain shocks cause upward price pressure across the whole manufacturing industry.

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