Re-shoring Global Supply Chains

• In Event: Production Networks and Market Protection

Abstract

What drives some countries to prioritize reshoring of global supply chains in response to global shocks? We argue that a country's choice to reshore production is dependent upon a supply chain's vulnerability to disruption as well as the sector's importance to national income. We model supply chain vulnerability as a function of supplier dependence and trust between trading partners. To test the validity of this model, we use (a) global value added data to construct a Herfindahl Index that measures supply chain dependence, (b) WTO dispute settlement data to construct a bilateral trust index, and (c) country-sector production data to measure the sector’s strategic importance. We predict that countries with highly vulnerable supply chains in strategically important sectors will be more likely to reshore production if there is high distrust between trading partners. This simple model explains, e.g., why Japan has earmarked $2.2 billion in its 2021 annual budget to re-shore auto-related production from China, but Germany has not allocated funds to move auto-related production out of the Czech Republic. This paper contributes to our understanding of the limitations of current global institutions in managing the negative externalities of globalization and provides a simple framework for measuring supply chain vulnerability.

Authors

• Ryan M. Weldzius, Villanova University

• Abigail Vaughn, Georgia Tech