Beggar Thy Neighbor: Carbon Emissions on Global Value Chains and Re-Understanding of Comparative Advantage

From an economic standpoint, the emergence of global supply chains is related to comparative advantage, highlighting the benefits of specialization and the ensuing generation of trade flows between distant locations. By relocating production processes to other countries, transnational corporations take advantage of the low-cost labors and optimal resources, to maintaining their competitiveness by augmenting productivity and minimizing costs. As global supply chains proliferate and countries use more intermediate imports to produce exports, gross export statistics paint an increasingly misleading picture of comparative advantage. Global sourcing across supply chains creates severe business continuity challenges for manufacturers. Trade protectionism, consumer preference for local products, and emerging technologies are some of the factors driving the trend toward localization. Benefits of localization include lower environmental impact in logistics and shipping, increased transparency and often shorter supply chains. Reshoring is the practice of bringing manufacturing and services back to the U.S. from overseas. Multinational companies are adjusting to shorter supply chains. President Donald Trump follows through on border tariffs, the dismantling of existing trade agreements, and other “America First” protectionism ideas. A set of policies that a country enacts to address its economic woes that, in turn, actually worsens the economic problems of other countries - Beggar Thy Neighbor. Under the global manufacturing division of labor, developed countries have shifted high-polluting industries to countries with low environmental restrictions, and then imported goods required by international trade to reduce domestic production emissions and put their neighbors on pollution emissions. Is the cleaner developed countries manufacturing composition offset by dirtier imports; or rather, the composition of imports has become cleaner? Or again, "Beggar Thy Neighbor"? This triennial proposal firstly builds a database that describes bilateral trade patterns, production, consumption and intermediate uses of goods, includes transport distances, tariffs, and trade agreements, to improve the quality of quantitative analysis of global value chains. Through an extended input–output analysis, this paper gives an insight into the intricate relationship of the sectors of an economic region and their respective greenhouse gas (GHG) emissions. In the second year, we plan to calculation emissions from production and cross-border logistics under the global value chain, international freight, and offshore outsourcing. Using the EEIO model to calculate the environmental costs incurred by various sectors in order to generate GDP. We will map out detailed patterns of global import/export freight trip distance and how cargo transportation distance relates to emissions; estimate the distribution across economies of final demand for embodied carbon that has been emitted anywhere in the world along global production chains; and assess the emission hotspots in the global supply chain. In the third year, we will consider how to reallocate production among countries with different emission intensity and estimate the total cost of ownership. Under the constraints of Gross Domestic Product, GHG emissions, and employment, we will formulate the relocation of global value chains as a multi-objective programming model to solve. This methodology enables mapping an optimized space of scenarios for emission reduction through consumption limitation with a minimal socio-economic loss.