Trade in Flux, Development in Doubt? Meeting the Shifting Challenges to Trade-led Development

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00:00 My name is Dion Filmer.

00:01 I'm the director of the Research Group here at the World Bank.

00:04 Um,

00:04 welcome to this April edition of our Policy Research talk series.

00:09 Um,

00:10 as many of you know,

00:10 these are a chance for us to

00:12 share what's coming out of the Research Department with colleagues

00:15 in the department and the rest of the World Bank,

00:17 and beyond.

00:18 Um,

00:19 I'd like to welcome the audience,

00:21 both in the room,

00:22 on,

00:22 um,

00:23 Webex as well as on YouTube.

00:25 Um,

00:26 today I'm very pleased to introduce my colleague Daria Taglioni,

00:29 the Research Manager of the Trade and International

00:32 Integration team here in the Research Department.

00:35 She'll be looking at recent developments in the

00:36 global economy that could threaten trade-led development.

00:40 As you all know,

00:41 globalization has played

00:43 a significant role in shaping the world economy,

00:46 but rising protectionism,

00:47 trade tensions,

00:48 and geopolitical challenges are casting doubt on globalization's future.

00:53 So Daria will be discussing the current state of globalization with

00:56 an eye towards answering the question of whether globalization can continue

01:00 to be

01:01 an important driver of economic growth and poverty reduction.

01:06 In addition,

01:07 we're extremely grateful to have uh our good friend here,

01:10 Aditya Matu,

01:12 uh as I discussion today.

01:13 Addie is the chief economist of the East Asia and Pacific Region of the World Bank.

01:17 He specializes in development,

01:18 trade,

01:19 and international cooperation,

01:21 generating research and,

01:23 uh,

01:23 providing policy advice to governments.

01:25 He was also the co-director of the World

01:27 Development Report 2020 on global value chains.

01:31 Uh,

01:32 Aditya has published widely on topics such as development,

01:36 trade,

01:36 trade and services,

01:37 and international trade agreements in academic,

01:40 uh.

01:41 Journals,

01:42 uh,

01:42 with much of this work

01:44 having been done while he was a colleague of ours in the research department.

01:47 Uh,

01:48 so the session today,

01:49 I'll ask Daria to talk for about 45 minutes,

01:51 after which we'll hear from Daria,

01:53 uh,

01:53 from Aditya for about 10 to 15 minutes.

01:56 Uh,

01:56 we'll conclude with some questions and audience,

01:58 uh,

01:59 questions and answers from the audience,

02:00 Q&A with the audience.

02:02 Uh,

02:02 if you have any questions,

02:03 please use the raised hand option in Webex or if you're in the room,

02:06 raise your hand,

02:08 uh,

02:08 or signal to me in the chat that you have a question.

02:11 If you're on YouTube,

02:12 please use the chat function there and that question will get relayed to me.

02:16 Uh,

02:16 just a reminder,

02:17 we are recording

02:18 and also if you're online,

02:19 please mute,

02:20 uh,

02:20 if you're not speaking.

02:21 So with that,

02:22 over to you,

02:22 Daria.

02:24 OK.

02:29 Thank you and um.

02:31 So,

02:32 certainly,

02:33 ah,

02:33 I think the first thing is to understand how to

02:37 Uh,

02:37 OK,

02:38 perfect.

02:39 So certainly there has not been,

02:40 uh,

02:41 a paucity of discussions around this topic in these days at the spring meetings.

02:46 Uh,

02:47 what I'll do today is to give,

02:49 uh,

02:50 um,

02:52 um.

02:53 To start with,

02:54 uh,

02:54 a couple of puzzling,

02:56 uh,

02:56 trends

02:57 and,

02:58 and then to,

02:59 um,

02:59 to give,

03:00 uh,

03:00 out of the research I've been doing,

03:02 uh,

03:03 with colleagues here at the bank and with,

03:05 uh,

03:06 co-authors outside

03:08 for possible,

03:09 um,

03:10 elements

03:11 that can help explain this puzzling trends.

03:14 The first trend is that 5 years into the Trump war,

03:19 China's importance in global trade has not diminished.

03:21 In fact,

03:22 it has increased.

03:24 Uh,

03:24 these two charts represent the World Trade Network.

03:30 Um,

03:30 this is,

03:30 uh,

03:31 overall goods in 2015

03:35 and in 2021.

03:37 It's probably difficult to see the precise measure of the bubbles,

03:42 but actually the bubble for China that explains

03:48 the importance of China and world trade,

03:52 it has increased,

03:53 and this is true by taking

03:55 all different metrics

03:57 of network analysis

03:59 and so.

03:59 To show this more clearly,

04:03 I'm looking here at three measures of

04:07 centrality import centrality,

04:10 export centrality,

04:12 and

04:13 a measure of spatial centrality.

04:15 Import and export centrality

04:18 are

04:18 akin to market shares in global trade.

04:22 And if you look at them,

04:23 uh,

04:24 so the,

04:24 the base year is 2000 is 2000,

04:27 uh,

04:27 in which,

04:28 uh,

04:28 I set it equal to 1.

04:30 And if you look at the growth,

04:32 um,

04:32 export,

04:33 uh,

04:33 central,

04:34 uh,

04:34 in,

04:35 in particular,

04:36 um,

04:37 Uh,

04:37 export centrality,

04:38 but also import centrality increased.

04:42 Uh,

04:42 spatial centrality increased the most.

04:44 Spatial centrality is a bit,

04:46 uh,

04:46 it,

04:47 it's basically,

04:48 it's a different type of measure.

04:49 It's more linked really to,

04:51 to the geography of where global trade happens,

04:54 and it reflects in part that.

04:57 Has become a big engine of global trade,

05:00 but if you take imports and exports,

05:02 you see that they became 4 times as much.

05:05 So the question is what happened at the same time in the US.

05:08 It has marginally reduced its centrality

05:11 along

05:12 this import and export import and export network measures.

05:18 The other interesting fact is that,

05:21 um,

05:22 so this is a chart which you probably saw

05:25 when we did the World Development Report 2020,

05:28 except that this version has 3 more,

05:32 actually 5 more years in the data.

05:34 And what we see is that at the time we were

05:37 really discussing the sort of leveling off of global value chain

05:42 growth

05:42 where global value chain here

05:44 is used by is defined by using the definition by

05:50 Alessandro Borri and Michele Mancini on crossing

05:55 two borders.

05:56 So for value added to cross two borders.

06:00 At least two borders,

06:01 2 borders or more.

06:03 And so what has happened

06:05 since last time we saw this chart,

06:07 which was up with the data up to 2000 to 2015,

06:11 is that

06:12 after this period of stall

06:15 in the last 3 years,

06:18 the share of trade that is GVC,

06:22 so that it crosses two borders

06:24 has increased.

06:27 And so

06:28 we always say that trade is not about countries but it is about firms.

06:34 So the last dimension I wanted to check to understand whether

06:40 these patterns are going

06:43 in one same direction

06:45 was to look at firm to firm linkages.

06:47 And so with a colleague.

06:49 We are exploiting a database

06:53 where we have information about firm to firm linkages,

06:57 meaning if firms are customers of another firm,

07:01 if they are suppliers,

07:02 or if they entered in some partnership agreement,

07:06 be it technology,

07:08 research and development,

07:10 co-development.

07:12 Um,

07:14 major,

07:15 uh,

07:17 financial,

07:18 um,

07:19 and what we see in,

07:21 uh,

07:21 in,

07:21 in this chart actually in the,

07:24 uh,

07:24 in the bars,

07:25 in the Y and in the X bars,

07:27 you have respectively the

07:30 share of

07:31 overall links

07:32 that firms established,

07:35 um.

07:37 In,

07:37 I mean,

07:38 and,

07:38 and,

07:38 and the data set goes from 2014 until 2022,

07:43 and,

07:43 and so we on the y axis we see the share of links that are with global partners.

07:49 So partners that are not from the same country and not from their same region.

07:55 Then on the x-axis we see the share of regional links.

07:59 So with partners in neighboring countries.

08:03 And then of course the complement.

08:05 What we don't see is

08:07 domestic partners.

08:09 And so what we see from 2014 until

08:13 2019 was an unabated pattern

08:18 towards internationalizing more firm to firm linkages.

08:22 Uh,

08:23 what happened since 2019

08:26 was

08:28 that

08:29 there has been

08:31 some

08:31 uh

08:32 shedding or some

08:35 a more than proportional.

08:39 Amount of new linkages with

08:44 either with global partners and then since 2020

08:49 also with domestic partners.

08:51 But the point here is that

08:54 again five years into this

08:57 global trade tensions,

08:59 we see that actually the global links.

09:02 Held up much better than the regional links.

09:05 So if anything,

09:07 in a way,

09:08 these three charts through different,

09:11 different angles tell us that despite all the shocks and despite

09:17 the volatility that this has created short term to global trade,

09:22 it seems that the response of global trade for now

09:27 has been one of resilience.

09:31 So what is it

09:33 that we can say?

09:34 What,

09:34 what,

09:35 what is it that we can say that might explain

09:39 this,

09:40 and it could be a first phase,

09:41 right,

09:42 but it's again 5 years into

09:45 a series,

09:46 an abated series of shocks.

09:48 So what are the explanations that will bring to the table?

09:51 One is that

09:53 when

09:53 we hear a lot.

09:56 That the world has turned protectionist,

10:00 but then when we look at policy data,

10:02 we actually see contrasting trends.

10:05 And so I think that there as well,

10:06 the picture is more nuanced.

10:09 Uh,

10:09 the second question,

10:11 uh,

10:12 is,

10:12 uh,

10:13 the second issue is that this new protection,

10:15 so we certainly see some

10:17 dimensions of new protection.

10:19 And so

10:21 this new protection is having effects on third countries,

10:24 but in unexpected ways.

10:27 The third point is that when we look at these emerging studies on deglobalization,

10:34 the impression is that they risk

10:36 both overestimating the feasibility of deglobalization,

10:40 but at the same time underestimating their true cost.

10:45 And,

10:46 and the 4th point I will make is that uh

10:49 even in a world in which there is risk,

10:51 it is not obvious that deglobalization,

10:54 regionalization,

10:55 reshoring,

10:56 or French shoring are the optimal policy responses.

11:00 So let's start with the contradictory policies.

11:04 So

11:05 the global trade alert is

11:07 the prime database in trade policy since the global crisis that tracks down.

11:15 Measures that country take and that can have either harmful effects or

11:21 pro-liberalizing pro-trade effects.

11:24 And so what we see from this chart is that certainly the number of harmful

11:31 measures has increased and that has increased

11:34 exponentially in the last couple of years.

11:37 Uh,

11:38 however,

11:39 also the number of liberalizing measures has been increasing.

11:44 And so,

11:45 let's look at

11:46 these two lines,

11:48 what's behind them?

11:50 So,

11:51 certainly,

11:52 um,

11:53 we see,

11:54 um,

11:56 that one area of activism in policies is the policies to enact the green shift.

12:05 And so the question we had,

12:07 and we initiated the project to look into that question one year ago,

12:11 is,

12:12 are green goals contributing to the surge in protectionism that we

12:17 observe in the data?

12:19 And so this is a work in progress with um

12:23 Emma Eisbett and Alexandro Sam Sammartin at the Australian National University

12:29 and with my colleague Anna Fernandez,

12:31 Anne Beck,

12:32 and Caroline Fisher.

12:34 And so what we see

12:37 is that the number of trade-related climate policies

12:40 has increased exponentially in all G20 countries.

12:44 We are tracking here

12:46 across the G20 countries 1800 distinct policies since 1990

12:53 until

12:54 2022.

12:57 Actually,

12:57 even we are the ones that until March 23rd,

13:01 to be precise,

13:01 we are still collecting the data,

13:04 but,

13:05 but we are also analyzing the ones we already have.

13:08 And so what we see is that all countries increase the number of green policies,

13:14 and that actually has an impact on trade.

13:17 And here the impact

13:19 can be positive or negative.

13:20 I'm not saying that it is negative,

13:22 but we see that not only.

13:24 The usual suspects like Germany is the darker green line,

13:29 the US is the lighter blue line,

13:32 are increasing these policies,

13:34 but also middle income countries here we reported Brazil and China,

13:39 but,

13:40 but then also

13:42 countries like Saudi Arabia that are predominantly commodity,

13:46 still specialized in commodities

13:48 have enacted this shift in policies.

13:53 And so the question is,

13:55 are these measures harming trade or helping trade,

14:00 or

14:01 trade is just a bystander.

14:05 And so what we find,

14:06 we are still

14:08 analyzing this question,

14:09 so I don't have a definite answer.

14:11 But one thing that we started doing was to ask if there was an explicit motivation

14:20 on.

14:21 Managing trade in enacting these policies and so here we have

14:27 the zero,

14:28 the red line is the baseline situation of policies

14:33 in the year 2005,

14:35 and what we see is that if we look in the description of the in the preamble,

14:40 in the motivation of these laws,

14:42 what has happened,

14:44 we see that there has been an increasing,

14:46 of course,

14:47 an explicit climate motivation.

14:49 But since 2005,

14:52 since the,

14:54 and,

14:54 and at each

14:56 um

14:57 each round of data,

15:00 and I will tell what the,

15:01 what the data here on the X line represents,

15:06 but at at each of these dates that we tracked,

15:08 we see that there is an increasing reference also

15:13 to.

15:14 Concerns about the competitiveness of the economy

15:18 and

15:20 another growing trend is that there starts to be an explicit reference to leakage.

15:26 Leakage in the environmental literature really reflects two concerns

15:32 of

15:34 economic activity.

15:37 relocating

15:39 to other jurisdictions

15:41 because of,

15:42 uh,

15:43 um,

15:45 because of,

15:45 uh,

15:47 environmental policies.

15:49 And so these are signs that uh

15:52 Trade is increasingly in the mindset of the regulators that

15:58 that work on green policies.

16:00 So the different data that you,

16:03 the different data points that you see in the charts

16:07 reflect

16:08 important COP meetings such as Kyoto,

16:11 Bonn,

16:12 Cancun,

16:13 Paris,

16:14 and also the more recent

16:17 events in trade like the post-COVID or the trade war.

16:22 OK,

16:23 so when we look at then,

16:25 the other thing that we are looking in this data is to ask,

16:28 are these,

16:29 uh,

16:30 climate-related policies that affect trade,

16:33 um,

16:34 aimed at,

16:35 uh,

16:36 um.

16:38 Are they policies

16:41 that change the relative price of goods

16:44 or are actually coming in the form of green subsidies,

16:47 and what we see from the data

16:49 is that indeed they mostly come as

16:54 Subsidies

16:55 and these have experienced a significant increase

16:59 since 2020,

17:00 not only

17:02 in the green agenda,

17:04 but also more broadly.

17:06 So the conclusion for this is that

17:11 for this from from this set of slides is that certainly.

17:16 Industrial policy is back.

17:21 Now coming

17:23 coming to the areas where actually we see still trade liberalization,

17:29 these are from trade agreements.

17:31 Countries are still negotiating

17:34 more and deeper trade agreements,

17:37 so the spike you see in 2021

17:40 is certainly.

17:41 In part due

17:43 to

17:45 the UK actually negotiating

17:48 agreements to reflect

17:50 the provisions that were already in place but

17:53 that were as part of the EU,

17:56 so you should discount about 30.

18:00 Agreements from that,

18:01 but if you look at

18:04 the overall situation,

18:06 you still have that in the period since 2018

18:11 until 2021,

18:13 netting out these agreements by the UK,

18:16 you have 26 new agreements that are being negotiated,

18:21 and a lot of these have deep provisions that

18:24 that span both goods and services.

18:28 Another,

18:29 uh,

18:30 interesting chart is actually from work by Aditya

18:33 together with Ingo Borgert at the University of Sussex and uh

18:39 Jocelyn Madeleine and Juan Marquetti at the WTO.

18:42 This is also very interesting.

18:44 What it shows,

18:46 um,

18:46 is the Services Trade restrictiveness index,

18:50 and what DTN is called or find is that

18:54 actually.

18:55 Since the global crisis,

18:57 the average level of

19:01 restrictiveness in services trade has gone down.

19:05 Of course there is a correlation

19:08 with richer countries being more open,

19:13 but we see that

19:16 the restrictions have gone down

19:19 for countries at all income levels.

19:23 So the first point is that we have on the one hand.

19:27 More subsidies,

19:29 uh,

19:30 and

19:31 also for objectives such as the green shift,

19:35 um,

19:37 but on the other hand,

19:38 countries are still actively

19:40 negotiating both bilateral and regional agreements that go beyond market access,

19:47 uh,

19:48 issues,

19:49 and that the services,

19:50 uh,

19:51 and the services,

19:52 uh,

19:52 sector is still being liberalized.

19:56 So that's the first element.

19:57 The second element is

20:01 about the impacts of the US-China trade war.

20:05 And so this is a paper with Penny Goldberg,

20:10 Pablo Fagel Maum,

20:12 Patrick Kennedy,

20:13 and Amit Candelwal,

20:15 where we look at the impacts of the US-China trade war

20:20 on the reallocation of

20:24 trade on a global level.

20:26 So what happened with the U.S.China tariff

20:29 war is basically the equivalent of taxing

20:32 $450 billion US dollars in annual trade,

20:37 and because of that offers a very interesting experiment in

20:43 protectionism.

20:44 Here what I'm showing is what happened,

20:48 what the two countries' strategies in terms of changing tariffs have been.

20:53 And so what we see is that the US tariff

20:57 changes

20:58 towards China

21:00 have

21:00 have touched pretty much all sectors.

21:03 At the same time,

21:05 the US has also taxed other countries in metals,

21:09 and this is the red.

21:12 The red,

21:12 uh,

21:13 line,

21:13 um,

21:15 uh,

21:15 towards the bottom of the,

21:17 uh,

21:17 of,

21:17 of the,

21:19 uh,

21:20 US,

21:20 uh,

21:20 uh chart.

21:22 Uh,

21:23 China's responded

21:25 in a typical

21:28 In a typical way by retaliatory tariffs on the US,

21:34 but at the same time as

21:36 as liberalized in the same

21:40 areas,

21:42 trade with

21:44 with other countries trying to offset

21:48 the effect of the additional cost that imposing tariffs on the US would have.

21:54 And again,

21:55 the tariffs have been

21:57 across the board of sectors.

21:59 So what has happened?

22:01 The first thing that has happened is what any trade.

22:08 First school textbook would tell you.

22:09 There have been negative effects on US exports to

22:13 China and on Chinese exports to the US.

22:16 So these are exemplified that the two blue lines.

22:21 Panel A reports China's exports to the US

22:27 and Panel B reports the US exports to China.

22:30 And uh and what happened in the targeted products was indeed the um

22:36 uh

22:37 this uh.

22:39 This substitution away from this bilateral trade.

22:43 By comparison,

22:45 the gray line show what was happening before the trade war.

22:50 Now,

22:50 what,

22:51 however,

22:51 it also happened

22:53 was that a number of countries,

22:55 and here we have the 48 top exporters in the world that we tracked,

23:01 uh,

23:02 most of them

23:04 actually

23:05 ended up increasing trade

23:09 in the sectors in the products that were targeted by the tariff,

23:14 uh,

23:14 by,

23:14 by the,

23:15 by the tariffs increases

23:17 by the US or China.

23:20 We see that some countries increase more,

23:24 such as Romania,

23:26 Turkey,

23:26 Vietnam,

23:27 and other countries less,

23:29 but very few countries Ukraine,

23:32 Egypt,

23:33 Israel,

23:33 and Colombia

23:35 saw their Relative export growth in these targeted

23:39 products decrease over this period of time.

23:42 We stopped the analysis at 2019 precisely not to have the

23:49 exercise affected by

23:51 the pandemic.

23:54 There is another interesting thing about this bystander effect.

23:58 So what happened is that these countries indeed

24:02 occupied some of the,

24:04 of the space left open

24:06 by um

24:08 by the US in China imports and by

24:12 China in the US imports.

24:14 And again,

24:15 the blue lines show how the these 48 countries

24:20 increased the

24:21 exports in targeted products

24:24 to China

24:25 and to the US

24:28 respectively,

24:29 um,

24:30 and what was happening in the gray lines before the pandemic.

24:34 But the more interesting and somehow unexpected fact

24:39 was that they

24:41 didn't,

24:42 didn't reallocate their production away from the rest of the world,

24:49 uh,

24:49 to,

24:49 to the US and China.

24:51 They actually expanded

24:52 exports also to the rest of the world.

24:55 And so what we say in the paper is that there are,

25:00 so the bystanders reallocate.

25:03 The real

25:07 location

25:07 depends on whether they produce goods that are complements or substitute

25:12 to the,

25:13 to the products that have been

25:16 taxed by the tariffs,

25:18 but there is also a scale effect

25:20 because they are able to produce at a higher scale thanks to the,

25:25 um,

25:26 thanks to the.

25:28 To the additional exports to the US and to China,

25:32 they are also

25:33 able to expand to the rest of the world.

25:36 Whether they are able to expand to the rest of

25:39 the world or not depends on their supply side.

25:43 So countries that have

25:47 the space on the supply side to reallocate factors of production.

25:52 Uh,

25:53 will actually be able to,

25:55 um,

25:56 and,

25:56 and that,

25:57 or that have unused the capacity

25:59 will actually be able to expand

26:03 their product,

26:04 their production and exports also to the rest of the world.

26:07 And so

26:09 the second element that I want to bring to this discussion is that indeed

26:15 protectionism between the two largest trading nations

26:19 can open opportunities for bystander.

26:24 But this will happen only if,

26:26 uh,

26:27 first of all,

26:28 the demand,

26:29 and if the demand and the supply

26:33 factors are

26:35 are

26:36 are working in favor of this

26:40 of this to happen.

26:43 OK,

26:43 the third point I want to make is about.

26:49 About the

26:53 feasibility of deglobalizing and its costs.

26:57 So we saw a lot of papers recently that try to estimate the costs of decoupling.

27:03 Probably the two most famous are a paper by the WTO and a paper by the IMF,

27:10 and these two papers,

27:11 I mean.

27:12 Different

27:13 scenarios and different

27:17 different

27:20 assumptions,

27:21 they sort of more or less say that the costs,

27:25 the welfare costs

27:26 of decoupling between the US and China

27:30 range

27:31 between 5% and 12%.

27:35 They assume these are the costs if the world gets divided into economic blocs.

27:42 So my point here is that these estimates do remain highly uncertain

27:47 on two fronts.

27:48 One

27:49 is,

27:50 as I said,

27:51 that they overestimate the feasibility of decoupling,

27:54 and the reason is that they assume that global

27:58 firms will have many substitutes to choose from,

28:01 which is,

28:02 which I will try to

28:03 convince you that at least in some critical industries is not the case.

28:08 The second point is that they

28:11 actually underestimate the potential cost of decoupling

28:18 because they

28:20 are not able

28:22 to model the situation where

28:24 these critical industries

28:27 might actually not be able to function

28:31 if

28:32 the current global setting is taken away.

28:36 So how do I do that again as an exercise we went with

28:42 Um,

28:43 co-authors are Eric Tun,

28:46 uh,

28:46 Tim Sturgeon,

28:47 and Mark Dallas,

28:49 uh,

28:50 respectively at the University of Oxford,

28:52 MIT,

28:53 and Union College,

28:54 New York.

28:55 And what we did was to collect data from the smartphone industry.

29:00 We collected data from

29:03 a little less than 500 smartphones that have been

29:06 issued since the creation of the smartphone in 2008.

29:11 And we,

29:13 this data are from tear downs are like industry data that tell us

29:19 every piece of components that come in the phone,

29:23 but then we also tracked the operating system,

29:27 who does the stunt.

29:29 What type of software for specific functions is

29:34 is put in these phones,

29:36 and we mapped who are the producers of all this

29:40 and what share of the total cost of a phone they contribute to.

29:46 Uh,

29:47 and so

29:49 I mean the phone as

29:53 on average at this point has

29:55 thousands of individual components and subcomponents,

29:59 but just to simplify matters we said,

30:01 OK,

30:02 let's take the five main.

30:03 Functions of a phone,

30:05 the CPU,

30:06 which is the brain,

30:07 the semiconductor piece,

30:09 the display and the camera,

30:12 um,

30:13 other wireless functions,

30:15 the memory,

30:16 and all the

30:17 pieces that are needed for the network connectivity.

30:21 So what we looked at in this first chart is

30:24 to look at who are the producers of these different

30:30 components in these different areas.

30:32 And so what we find is that

30:36 the producers are

30:39 increasingly less companies,

30:42 so there is a high degree of concentration.

30:45 And so if you take the US

30:49 Government guidelines of what it is defined as a concentrated industry,

30:54 which is 0.25

30:57 of Nervinder Irshman index,

31:01 you see that all of these functions by

31:03 2019 are too concentrated according to these guidelines.

31:08 There are few

31:10 producers

31:11 and in fact we see it in the data where for any single.

31:15 Um,

31:16 uh,

31:17 component where

31:19 10 years ago there were maybe 567 producers.

31:23 Now we are down to 1 or 2.

31:27 OK.

31:28 So,

31:29 because there are less producers,

31:31 they obviously tend also,

31:34 where they locate becomes increasingly important from a strategic point of view.

31:40 And so here what you see is again for these five functions

31:45 where the mobile component,

31:48 so

31:50 who is the main country

31:52 producing

31:54 this mobile phone component,

31:57 so 72.5% of the CPU.

32:02 of the value added of the cost share

32:06 is produced in the US 11%,

32:09 almost 12% in South Korea,

32:11 and China does a showing with 13%,

32:16 which increased rapidly.

32:18 If I would have shown you the same data for

32:21 10 years earlier,

32:22 China wasn't there.

32:24 Uh,

32:24 in memory,

32:25 again,

32:25 the US is the biggest provider,

32:30 in display and camera in Japan.

32:33 Network connectivities.

32:35 Korea and other wireless functions is Korea,

32:38 but what it's important really is to see

32:41 is that a smartphone at this point in 2019 needs to be constructed in the world.

32:47 There is not the possibility to actually

32:50 move easily

32:53 these functions that are,

32:54 say,

32:54 in South Korea into the US.

32:57 And so we see that in the data.

33:00 So this is again the Ishmanner Findal index for this,

33:04 uh,

33:04 uh,

33:05 for,

33:06 for these measures and how it progressed over time.

33:08 And if you look at just row by row,

33:11 you see the increasing concentration of this production

33:15 and you can also see it from the mapping of the.

33:19 Bilateral input and output in this

33:22 data set

33:24 that we reconstructed,

33:25 you see that

33:26 there are less linkages overall,

33:30 but these are,

33:32 these are remain

33:34 geographically located in very dispersed locations across the globe.

33:41 So the second,

33:42 uh,

33:43 so this is interesting.

33:45 So we have an industry that is becoming concentrated in fewer global companies

33:52 and activities,

33:54 uh,

33:54 families of activities get clustered in in specific locations.

33:59 What is the interesting thing,

34:01 however,

34:01 is that while this all happened,

34:04 actually

34:05 the

34:07 performance.

34:08 The technical performance of mobile phones

34:11 has increased in all functions incredibly.

34:15 So these are like the annual,

34:18 the compound annual growth rates

34:21 of

34:22 each

34:23 of the main functions and within these families of functions,

34:28 the subfunctions,

34:29 and you see that

34:33 I mean you can take any.

34:34 Of these measures

34:37 as a measure of increasing performance,

34:39 they've been all increasing incredibly

34:43 because even a 9% per year

34:46 means

34:47 basically 90%

34:50 improvement,

34:50 almost doubling the standards in 10 years.

34:54 And at the same time,

34:56 both the number of components that you find in each device

35:00 and the average number of

35:01 Suppliers that are needed to produce a single device have increased.

35:06 So it's it's,

35:08 it's,

35:10 it's an interesting completely different way of

35:13 thinking about how these industries are organized.

35:16 And so the question is

35:18 why

35:19 an industry which is increasingly concentrated in terms

35:24 of who does very specific niche activities.

35:28 And and that these are located so far away from one

35:33 another manages to have this type of performance improvement but also expand

35:40 in terms of innovation,

35:42 complexity,

35:43 but also in terms of participation

35:46 to

35:47 producing this good

35:48 and the answer we give in this paper is that in at least in digitally.

35:55 Intensive industries,

35:57 but our suspicion is that is the case also

36:00 for other critical industries in a modern economy.

36:04 The way firms behave has become what we call the massively modular system,

36:10 which is in the end a decentralized system.

36:13 We tend to think still of global value chains as

36:17 industries dominated by elite firm that moves

36:21 around at their own will as suppliers,

36:23 but what

36:25 is happening in the

36:26 industries is a profoundly different story where

36:29 actually there is more of an ecosystem

36:32 decentralized where incentives are aligned

36:35 and where there has been a lot of work

36:39 in

36:40 creating this interconnection or communication standards

36:45 and where

36:47 because of this.

36:49 Collective shared way of working,

36:54 incredible economies of scale could be achieved,

36:57 which explain both the concentration in few firms of

37:03 very specialized function

37:05 and the fact that

37:08 that

37:08 each of these functions becomes then

37:13 more

37:14 systemic.

37:15 Um,

37:17 OK,

37:18 so

37:19 the last thing that we do in this paper,

37:21 which I think is relevant to this conversation is to ask,

37:24 OK,

37:25 this is the system

37:27 we are coming out from,

37:29 and that on the one hand has,

37:31 um,

37:32 has been extremely efficient,

37:34 but at the same time it has in itself

37:37 the seeds for the geostrategic tensions that we see

37:41 precisely because every function becomes more systemically important.

37:45 And if it's located in a country that is not behaving

37:49 in a friendly way,

37:50 it can become a problem.

37:51 And so we say,

37:52 OK,

37:53 what would happen if we do partial,

37:56 if a country decides to do a partial decoupling here

37:59 or a full decoupling?

38:00 And so first of all,

38:02 And this is work we are still sort of

38:07 completing,

38:08 but the first is that we look at the capital costs and we find that

38:14 there are high capital costs in trying to do import substitution in a partial way.

38:19 And

38:21 if one wants to go for full decoupling,

38:23 this cost becomes prohibitive.

38:26 The second point is that reshoring in one segment,

38:30 if you,

38:31 if you target

38:32 any of these segments

38:34 as the policymaker,

38:36 you might actually create

38:39 new import dependencies

38:41 in other areas without really knowing.

38:45 And also that the industrial segment selected by

38:48 the policymaker might not be the correct one.

38:52 So what happens when you try to do full decoupling?

38:55 Of course,

38:56 if you try to do it in a relatively short amount of time,

39:00 which in this industry means less than 2025 years,

39:04 you might end up with a possible systemic failure simply because you do not have

39:09 the

39:09 hardware engineers,

39:11 the software engineer,

39:12 the experts,

39:13 the

39:14 the mathematicians that know how to work on doing that particular function.

39:20 And you also lose this uh uh scale effect that we saw

39:27 in the last 10 years.

39:29 Uh,

39:31 then of course there is something

39:34 that

39:36 that we've long known,

39:37 which is that

39:39 non-market driven investments tend to have an early obsolescence.

39:45 There can be accelerated brain drain

39:49 and loss of,

39:51 in the short term,

39:52 loss of quality,

39:53 loss of product functionality,

39:55 loss of innovation.

39:58 In both cases,

39:59 you will find also that there are

40:02 interruptions in the ongoing collaborative technological learning,

40:06 uh,

40:07 and I think uh Aditya can speak to some of that because she has is just

40:12 uh put out a paper that talks on

40:14 that and interruptions in human resource development.

40:18 OK,

40:18 then,

40:19 the last point I want to make is,

40:22 is this one that

40:24 even in a world where there is risk,

40:26 it's not obvious that the globalization is an optimal policy response.

40:31 So this is work with Alessandro Borin and Michele Mancini,

40:36 and what we do in this paper is to look at.

40:40 Country sector

40:42 combinations

40:44 of data from the

40:47 multi-regional input output tables

40:50 and so using the methodology

40:54 that I mentioned before of distinguishing flows that cross two frontiers before.

41:01 Ending in the end product versus um goods that do not cross a,

41:06 a frontier at all,

41:08 which are domestic output,

41:10 remain as purely domestic output

41:13 and um

41:14 And,

41:14 and uh flows that cross only one fron frontier that

41:18 we call traditional trade for lack of a better word,

41:22 we try to distinguish what is uh what happens when firms or when

41:28 actually output of a country is exposed to

41:32 uh

41:33 to to domes to to domestic versus

41:36 uh GVC related shocks.

41:39 Now,

41:39 a caveat,

41:40 when I talk about the GVC

41:44 related output,

41:45 it's obviously,

41:46 um,

41:48 uh,

41:48 uh,

41:49 a subset of all GVC activity.

41:52 And so the point is that it's a sufficient

41:55 condition,

41:55 meaning

41:56 if a value added crosses two borders,

42:00 it's for sure a global value chain.

42:02 If it doesn't,

42:02 it doesn't mean.

42:04 That is not a global value chain.

42:06 There can still be several producers organized

42:10 uh in uh uh fragmenting production to do it.

42:15 But anyway,

42:15 if we look at this corner case of what we call here global value chain,

42:20 we see that of course as a country's participation.

42:25 Increases in this way of working,

42:28 the exposure to

42:30 shocks

42:31 that come from the global economy increase,

42:34 and this is something that everybody has pointed out.

42:37 What we,

42:38 however,

42:39 point out is that we need to put that in reality,

42:42 not to a counterfactual where there are no shocks,

42:45 but to a counterfactual where actually there are shocks

42:49 from the domestic economy or from shallower forms of trade integration.

42:55 And when we do that,

42:56 we see that it's true that the exposure

42:59 to global shocks increases,

43:01 but this comes on par

43:03 to a declining exposure to more localized shocks.

43:08 And then the next question was,

43:10 OK,

43:11 if there is this differential exposure to local shocks versus global shocks.

43:17 Then the question becomes of whether countries

43:20 are more exposed to global shocks versus

43:24 Versus domestic or simple trade shocks on par.

43:29 And so what we find is that for 90% of the

43:32 countries and sectors that this type of dataset allows to track,

43:38 the output volatility that is generated by a GVC-related demand shock

43:44 is lower than the alternative scenarios of simple trade or of.

43:49 Domestic output,

43:51 we measure this

43:52 by looking at the

43:55 cumulative probability

43:58 to

44:01 to have a positive or a negative difference

44:05 between the volatility generated by a GVC and a non-GVC shocks.

44:10 And so you see that the cumulative probability approaches 1.

44:16 On the negative side,

44:17 which means that non-GVC shocks

44:21 are more likely to hit

44:24 any of the economies trapped in this data set.

44:29 than GDC related shocks,

44:32 and the answer which we find and which we give is

44:36 that this is due to the fact that global value chain participation

44:40 is associated with greater market diversification,

44:43 and you can see this again by using the Er Findel Iman index

44:49 of the final market concentration

44:52 and relating it to GDC intensity.

44:56 So

44:57 again,

44:58 to bring this more aggregate data to the firms,

45:01 uh,

45:01 what I,

45:03 what I asked Anna

45:05 if we could quickly do just to see whether we see similar evidence stemming from

45:12 Uh,

45:13 firm level,

45:14 firm to firm linkages data,

45:16 the data set that I showed at the beginning was to bring it to,

45:19 to,

45:20 to this data,

45:21 and what we find is that if we,

45:25 so the,

45:26 the GVC exposure uh that we see there

45:31 here we translated it in the firm number of links.

45:35 Across borders

45:37 and we related it to firm log sales

45:40 in the in the left panel

45:43 and to the volatility of firm log sales on the right hand side panel

45:48 and we see that the uh that there is an increase in log sales

45:54 uh with the uh

45:57 so the.

45:58 The log sales is increasing in firm links

46:04 and the volatility is decreasing and even I think in

46:09 another element that it's interesting

46:11 is that

46:13 this is even more the case during the years of

46:17 shocks in in the uh the recent period 2018,

46:21 2022.

46:23 So

46:24 coming to the end,

46:26 what are the conclusions and the policy implications?

46:29 I went through these four

46:31 elements that we have contradictory

46:34 elements in trade policy and international cooperation,

46:38 so it's not a black and white picture

46:40 that the bystander effect of large

46:44 decoupling exercises like the US-China trade war

46:48 will can generate reallocations to the rest of the.

46:52 World,

46:53 but that country-specific demand and demand and supply factors matter.

46:59 So I think

47:01 a subtext of this is that

47:05 the macroeconomic and the domestic institutions of countries that want to

47:11 occupy that slack,

47:12 that slack that might be free

47:15 become even more important,

47:17 not less important in a period of shocks and uncertainty.

47:22 I also illustrated why

47:26 why the decoupling is harder than you think.

47:30 Simply,

47:30 there are not

47:32 an infinite number of suppliers to reallocate activity closer to home at will.

47:38 Of the policymaker

47:39 and that if this exercise

47:43 it's

47:44 tried out to its full extent might actually lead

47:50 to some industries not being able to function.

47:54 And finally,

47:56 that because policies that try to deglobalize in one dimension

48:03 or another

48:04 lead to lower market differentiation,

48:07 there might be cost,

48:08 costs

48:10 that are not accounted for in some of the policy discussions.

48:14 And so what it means for policy for us.

48:17 I think that one first point is that

48:21 we need to factor in more in industrial organization

48:26 models and discussion in trade discussions that

48:30 specialization and scale characterize the modern economy

48:34 and understand what this specialization scale

48:39 at the firm,

48:40 at the industry,

48:41 and at the country level matter.

48:44 And because specialization and scale increase,

48:47 the switching costs increase

48:50 for firms,

48:51 for industries,

48:51 and for countries.

48:54 And in a world of a of a higher switching costs,

48:58 the returns from coordination are amplified,

49:01 which brings back the importance of having,

49:04 um,

49:06 An agenda where we try to

49:09 deflate the

49:12 this international tensions that are currently dominating the policy arena

49:20 in the area of international trade and international relations.

49:24 Um,

49:26 what countries can do on their side,

49:30 um,

49:31 again,

49:31 targeting market diversification remains important,

49:36 and so it remains working on a domestic agenda,

49:41 uh,

49:42 macroeconomic and domestic institutions agenda

49:46 that foster that market diversification.

49:49 But then more important than ever,

49:51 it's

49:52 again to come

49:54 to

49:56 again a new consensus on what is

49:59 a global set of rules

50:02 where we can all comply with

50:05 and what a global governance system

50:09 should look like,

50:10 because clearly

50:11 the alternative of

50:14 Individual countries driving their preferences

50:19 through subsidies in an uncoordinated manner

50:23 seems,

50:24 uh,

50:24 at least to uh

50:27 uh

50:29 to,

50:29 to,

50:30 to have some complications.

50:33 Thank you.

50:39 Thank you,

50:40 Dario.

50:40 So we're gonna turn it over to Aditya.

50:42 Um,

50:42 just while he's getting set up,

50:43 just let me remind you if,

50:44 if you're watching online,

50:46 please,

50:46 um,

50:47 just flag to me in the chat that you have a question,

50:49 and I'll

50:50 call on you,

50:51 ask you to unmute and ask your question,

50:53 um,

50:53 yourself if you can,

50:55 um.

50:57 OK,

50:57 Aditya,

50:58 thank you very much for inviting me

51:01 and um thank you,

51:02 Daria for another

51:04 brilliant presentation

51:07 full of knowledge and insight.

51:10 Uh,

51:10 my role in collaboration with Daria is usually just to channel the flood of ideas

51:17 and to make sure that she puts them out in published form,

51:20 but Daria is reluctant to make a compromise with imperfection.

51:25 So the bank has made a compromise.

51:26 So now Daria can write working papers,

51:28 which she infinitely updates

51:31 as she

51:32 learns more

51:33 and uh

51:35 becomes closer to the truth.

51:37 So,

51:37 uh,

51:37 in my new role,

51:39 I am less cautious.

51:41 So,

51:41 my,

51:42 uh,

51:42 I will just present what are really some

51:45 small candles

51:48 in the face of this forest fire of ideas that Daria has presented.

51:52 And,

51:53 uh,

51:54 I'll,

51:55 I'll take these four points that Daria made very nicely,

51:58 and,

51:59 uh,

52:00 Not in the order that she presented them,

52:02 one that we now see contrasting policies,

52:05 we see reform in some dimensions,

52:07 and reversals and protection and others,

52:10 that how it would be,

52:13 you know,

52:14 responding to this riskiness,

52:16 uh,

52:18 by turning inwards doesn't make sense,

52:20 that

52:21 These

52:22 trade wars we're seeing are having unexpected

52:24 and sometimes positive effects on third countries.

52:28 And finally,

52:28 that,

52:29 you know,

52:29 this is a very nice point that Daria is making,

52:31 that on the one hand,

52:33 deglobalization is going to be really hard,

52:37 but if you force it,

52:38 it's going to be really costly.

52:41 So let me just make a few points,

52:43 uh,

52:43 quickly.

52:44 You know,

52:44 the first,

52:46 understanding the new protectionism.

52:48 For those of you who are culturally diversified,

52:50 unlike my friend Kiki,

52:53 who have seen this recent,

52:54 uh,

52:55 Indian movie called RRR which won this.

52:59 So I was inspired by this because now we are in an era of PPP,

53:03 CCC,

53:04 DDT.

53:04 So RRR

53:05 is why do we see this new protection?

53:08 It is because,

53:10 you know,

53:10 first

53:12 phase was trade was seen as regressive,

53:15 that industrial country inequality was because of

53:18 trade,

53:19 so we saw that phase.

53:20 Then now we are in the phase of trade

53:22 is seen as risky as somehow accentuating the vulnerability

53:27 to acts of both God,

53:28 which is natural disasters and pandemics,

53:31 but also acts of,

53:32 I should say,

53:34 I would have said human rather than man,

53:36 but I know.

53:36 would never do these things like shutting

53:38 off export supplies for food and medicines.

53:41 So it must be acts of man,

53:42 which also,

53:43 you know,

53:43 make you vulnerable to the fact that your neighbor,

53:46 when they face scarcity,

53:48 they shut off supplies.

53:49 So how do you do that?

53:50 So an institution like the World Trade Organization,

53:53 which has done a lot of good,

53:54 has been largely helpless in inducing people

53:58 to share scarce products in bad times.

54:02 So the third reason is rivalry.

54:04 And the fact that,

54:06 you know,

54:06 the US is now seeing its hegemony

54:10 erode

54:11 and China's emergence,

54:12 and I would argue,

54:13 you know,

54:13 there is a solution to the first,

54:15 the inequality,

54:16 you improve domestic policies,

54:18 you cooperate on taxes,

54:19 which empowers the state to help the poor and the losers.

54:23 Riskiss is a little bit more complicated.

54:25 We'll talk about.

54:26 It's this rivalry,

54:27 which is super destructive,

54:29 because if you're bent on preventing the emergence of a rival hegemon,

54:33 non-discrimination is very hard.

54:35 But these are,

54:36 now,

54:36 let's turn to one specific example,

54:39 which is these green subsidies.

54:41 So in all these cases,

54:43 since I'm in the company of my former colleagues who are all smarter than me,

54:47 And these are,

54:48 I'm going to present some questions about what we might think about.

54:51 So,

54:52 when we look at these protectionist green subsidies,

54:55 which this nice new work reveals,

54:58 You see,

54:58 the classic climate question is always,

55:01 you know,

55:02 what is the optimal cooperative global tax or subsidy

55:06 to attain environmental goals.

55:08 So everybody says,

55:09 you know,

55:09 if you think of climate as a bad,

55:12 you should just have a carbon tax.

55:14 Then some people say,

55:14 OK,

55:15 maybe

55:16 the property rights are not well defined.

55:18 So let's think of the optimal climate subsidy.

55:21 Now the classic trade policy concern is what

55:24 is the impact of these local content requirements.

55:27 This is our trade tunnel vision.

55:29 How are they increasing the cost?

55:31 And then you argue,

55:32 hey,

55:33 you are going to lose out on the benefits of these

55:35 subsidies if you do this inefficiently by insisting on local content.

55:40 So the real benefit of this subsidy is eroded by using inefficient methods.

55:47 I think that analysis misses out on a crucial fact.

55:50 The crucial fact is,

55:52 for a long time,

55:54 you have not had any meaningful climate action at all.

55:57 The political economy,

55:59 for example,

55:59 in the United States,

56:00 favored 0.0% carbon tax,

56:03 and in many other countries you have fossil fuel subsidies rather than taxes.

56:08 You are in effect for the first time seeing meaning meaningful climate action

56:14 spawned not by climate policy.

56:17 But by industrial policy.

56:20 So what would you do if you took a game theoretic or political economy view of this?

56:25 You would recognize

56:27 that climate cooperation in the first best sense is not feasible.

56:32 And if it's not feasible,

56:34 The question is,

56:36 would we get a better outcome on climate by allowing discrimination,

56:41 harnessing the political economy of vested interests who say

56:44 we're going to create local jobs and local industries,

56:48 give us more subsidies,

56:50 or would you do it by insisting on non-discrimination

56:54 when everybody say,

56:55 hey,

56:55 hey,

56:56 these subsidies are all leaking to the Chinese and the Japanese.

57:00 We don't do this because then that'll.

57:02 Reduce the political

57:04 support

57:05 for these subsidies.

57:07 So you know,

57:08 understanding

57:09 what the trade-offs are in making these compromises,

57:13 for example,

57:14 accepting that if we really care about the climate,

57:17 maybe we have to accept

57:18 that you're only going to get climate action if people give up on trade.

57:22 And you know,

57:23 it's also worth thinking ahead,

57:25 and this is not strictly related,

57:26 but it's important for Dion and Art who are the.

57:30 Opinion makers of this institution,

57:34 that

57:35 if you create new technologies,

57:37 and for my friend who has been thinking about climate for a long time,

57:42 if you get these new technologies,

57:44 which are conceived of in this

57:47 illegitimate,

57:50 Political economy of industrial policy way,

57:53 are they going to become global public goods tomorrow?

57:56 Or will they become like vaccines which everybody holds on to?

58:00 So I think thinking ahead a little bit to this question is,

58:03 I think,

58:03 really fundamental

58:05 to the World Bank's contribution to the global public good

58:09 and to the mitigation agenda.

58:11 Let me turn to the second question,

58:13 which was riskiness,

58:14 responding to riskiness.

58:15 Daria said why it is perverse to go back.

58:18 And you know,

58:19 to restrict,

58:20 let me show you some evidence on what we learned from previous shocks.

58:24 So,

58:25 you know,

58:25 when you think of the 2011 Tohuku earthquake.

58:31 What did that do to people's choices of where to source from?

58:36 And what we found in some work,

58:38 which is interesting,

58:39 that where there was low dependence on Japan,

58:43 nothing much changed.

58:44 Where people were highly dependent on Japan,

58:47 they turned

58:49 away from Japan.

58:50 But

58:52 This was the big shift,

58:54 but what I find more interesting

58:57 first from a development perspective,

58:59 where did they go?

59:00 They went to Vietnam,

59:01 which had trade friendly policies.

59:03 They didn't go to Indonesia,

59:05 which had huge trade restrictions from a pure.

59:08 Classical trade perspective,

59:10 if you want to attract production and value chains,

59:13 be open,

59:14 improve logistics,

59:15 all the things that we've been talking about in the bank,

59:18 but you did not see reshoring

59:21 and you did not see diversification.

59:24 So this is the first puzzle,

59:26 you know,

59:26 this idea that you have a risky location

59:30 doesn't create your,

59:32 seem to create an overall sense that the world is a risky place,

59:36 at least with this shock.

59:38 And let's either

59:39 distrust trade per se and come home,

59:42 or distress,

59:43 distrust any particular location and diversify.

59:46 Perhaps because the fixed costs of diversification are actually

59:49 really quite high.

59:51 Now,

59:51 it does raise a good and important question,

59:55 and there's a very nice paper

59:56 by Grossman and others.

59:58 This is,

59:59 you know,

59:59 are we likely to get

1:00:01 over divers under diversification because individual firms don't look

1:00:06 at the There's a kind of coordination failure.

1:00:09 Each firm rushes to maximize our profits and pick the cheapest location,

1:00:14 but if all firms do that,

1:00:16 that becomes,

1:00:17 uh,

1:00:17 overall country level excessive dependence on a particular source.

1:00:23 Is that the problem?

1:00:24 Or is it that because if you

1:00:27 were the one person whose production was not affected by a shock,

1:00:32 you reap such high rents

1:00:34 that you.

1:00:36 Over diversify.

1:00:38 So this is less obvious intuitively,

1:00:41 but you know,

1:00:41 thinking about whether trade rules in a world where you are subject,

1:00:45 as I said,

1:00:46 to shocks made by God and by your trading partners,

1:00:51 should you in that,

1:00:52 if you,

1:00:52 if the trading system

1:00:54 cannot display discipline export restrictions,

1:00:58 should it allow

1:00:59 a kind of precautionary import policy?

1:01:02 I think it's a question we should think about.

1:01:04 Let me turn to.

1:01:06 Uh,

1:01:06 just one other point about this.

1:01:09 Costs of diversification,

1:01:11 you know,

1:01:12 Mongolia is a country

1:01:14 which has

1:01:15 Russia in the North and China in the south.

1:01:18 When the Ukraine war happened and COVID shock happened,

1:01:21 the Chinese decided that

1:01:23 Mongolian coal might carry COVID infection

1:01:26 and shut off their export supplies.

1:01:30 Russian

1:01:32 Made it harder for

1:01:33 Mongolia to import,

1:01:35 so we had a meeting with the Mongolian finance minister,

1:01:38 and he said our highest priority

1:01:41 last time he came 3 years ago when I first joined,

1:01:44 he said our highest priority is to diversify for productivity and growth.

1:01:50 This time he said our highest priority is to

1:01:52 diversify for food and energy to increase resilience.

1:01:58 So we have to see that this insecurity and unreliability has a huge development tax,

1:02:05 and how we advise our countries

1:02:07 to navigate this problem that you can't tell them,

1:02:11 trust us.

1:02:13 Because now either you're going to impose sanctions in some state or you're going to

1:02:18 disrupt the world.

1:02:19 So what

1:02:20 do you tell developing countries?

1:02:22 How should they deal with this inherent insecurity

1:02:26 in a world where you have,

1:02:27 as I keep saying,

1:02:28 both natural shocks and man-made shocks?

1:02:32 Daria made very nice points about the unexpected effects on third countries.

1:02:37 Just one point,

1:02:37 these economies of scale.

1:02:39 If this is excess capacity and scale,

1:02:43 then why don't they realize them unilaterally?

1:02:45 Why do you have to wait for protection in one market?

1:02:49 Or if the firms are blind to it,

1:02:51 why not subsidize them?

1:02:52 Because then you'll get these

1:02:54 huge economies of scale benefits.

1:02:56 So as a,

1:02:57 you know,

1:02:58 microeconomics of all this,

1:03:00 just thinking about what

1:03:02 kind of equilibrium and how do you do the comparative statics and what.

1:03:06 What are the other instruments which would help you

1:03:08 to export,

1:03:10 you know,

1:03:10 when you're driven out of or give slight opportunities in one market,

1:03:14 you start exporting everywhere.

1:03:16 So that's one point.

1:03:17 But then also Daria,

1:03:19 you have thought more about these value chains than everybody else.

1:03:22 So this is some work that we have done.

1:03:25 Which shows that,

1:03:26 you know,

1:03:27 in this world,

1:03:28 just looking at what's happening at one stage of production

1:03:32 might not give the whole picture,

1:03:34 because what we see is that as the US imposed restrictions on China,

1:03:39 China's share in the US market went down.

1:03:43 True,

1:03:44 East Asia,

1:03:45 particularly Vietnam share in the US market for final goods went up,

1:03:49 but

1:03:50 imports from China also increased to East Asia.

1:03:54 So

1:03:55 these 2nd order effects in the import market and see in

1:03:59 your chart where you showed the effect of US restrictions,

1:04:02 you didn't have China's exports there.

1:04:05 Maybe China's exports are also going up because

1:04:08 they are supplying the inputs which everybody else.

1:04:10 So in a way,

1:04:11 in order to displace China,

1:04:13 countries are embracing China.

1:04:16 My country,

1:04:17 which remains suspicious of China,

1:04:19 might be actually shutting itself out of the opportunity

1:04:23 of actually taking advantage of the new opportunities.

1:04:26 Same problem in Indonesia.

1:04:28 So,

1:04:29 again,

1:04:29 thinking about what these effects are and how they will affect.

1:04:32 And I thought you have slightly positive

1:04:35 twist on this from a development perspective,

1:04:37 I worry about,

1:04:39 because,

1:04:39 you know,

1:04:39 as you nicely said,

1:04:41 Daria,

1:04:41 rules-based trade creates a predictable environment.

1:04:45 Now we have politics making

1:04:47 these,

1:04:48 influencing these choices.

1:04:50 And there the concern is that,

1:04:52 you know,

1:04:54 You create a less predictable environment.

1:04:57 So the short term benefits might create

1:05:00 long term uncertainty and therefore inhibit investment.

1:05:03 So we have to as a multilateral institution,

1:05:06 be a little bit careful about celebrating the

1:05:08 incidental benefits of perverse policies.

1:05:12 Final point.

1:05:13 I think a very nice point you

1:05:15 made about deglobalization being difficult but costly,

1:05:19 but we should be alert.

1:05:20 And I think we need to be alert first,

1:05:23 because you could have segmentation of markets by standards.

1:05:27 And this is something we don't fully understand.

1:05:30 You know,

1:05:30 just as

1:05:31 two countries coming together and harmonizing their

1:05:34 standards or mutually recognizing has a positive

1:05:37 benefit on third countries because they can

1:05:39 exploit economies of scale in integrated markets,

1:05:42 two countries falling apart

1:05:44 create negative effects.

1:05:47 So,

1:05:48 how big are those negative effects

1:05:51 and what types of standards and products are subject to these risks?

1:05:56 You know,

1:05:56 when somebody says,

1:05:57 I won't allow Huawei and 5G 5G into my market,

1:06:00 what do we know?

1:06:01 Will it

1:06:02 create segmentation when one person says,

1:06:04 I have high privacy standards,

1:06:05 and another says,

1:06:06 no,

1:06:07 that those flows of components or data,

1:06:11 are they going to hurt

1:06:13 third countries because of

1:06:15 the scope for economies of scale?

1:06:17 The other thing that you could have,

1:06:19 and I'm sure you've thought of,

1:06:21 but you cannot do everything in one paper,

1:06:23 is that,

1:06:24 you know,

1:06:24 when we look at these restrictions,

1:06:26 they're not just restrictions on bilateral trade.

1:06:30 They're now taking the form of,

1:06:33 if I sell you,

1:06:35 let's assume this is a semiconductor,

1:06:37 you cannot

1:06:39 sell this onwards.

1:06:43 To anybody if it contains anything that I have.

1:06:46 So there are ultimate consumer restrictions.

1:06:48 And also,

1:06:49 you see,

1:06:50 normally you worry about rules of origin and preferential agreements.

1:06:53 In a sense,

1:06:54 relative to the world,

1:06:56 the rest of the world has no preferential relative to China,

1:06:59 the rest of the world has preferential access to the US market.

1:07:03 So you could see rules of origin,

1:07:05 ultimate input restrictions that I won't buy from.

1:07:08 You if you have certain inputs now in a world where you're all

1:07:12 integrated in the very nice way you described in global value chains,

1:07:17 these ultimate restrictions could become analogous to

1:07:20 rules of origin and free trade agreements

1:07:22 or so,

1:07:23 so even this incidental benefit that you're getting

1:07:26 could get eroded by these restrictions on what

1:07:29 you can do with the inputs I sell you or where you can source inputs.

1:07:34 Which go into things that you sell to me.

1:07:36 So we should,

1:07:37 I think,

1:07:37 think about these questions a bit more.

1:07:40 Final point,

1:07:41 there are

1:07:42 restrictions that are already having an effect.

1:07:46 So your

1:07:47 pessimism about the scope of the restrictions doesn't

1:07:50 include these restrictions on collaboration in knowledge.

1:07:54 You know how hard it is for Chinese students to come here.

1:07:57 You know,

1:07:57 there are entity lists being published by the United States,

1:08:00 and we have been able to show in this research

1:08:02 that countries,

1:08:04 which are firms are in sectors where there was collaboration in

1:08:08 the sense of both knowledge flows with patents in my country,

1:08:12 we're citing patents in your country or researchers in my country were working,

1:08:16 the researchers in your country

1:08:17 are hurting both innovation in China.

1:08:21 And in the United States.

1:08:23 And that could be a problem for the whole world,

1:08:25 because if you have these bilateral restrictions on

1:08:28 technology flows,

1:08:29 you're reducing the global flows of knowledge,

1:08:32 and that is costly for everybody,

1:08:35 because especially at coming back to these green technologies,

1:08:37 you know that China and other US both have a stake in them.

1:08:41 If these don't become global,

1:08:42 if you

1:08:43 the two problems,

1:08:44 you hurt the generation of the knowledge.

1:08:47 And potentially hurt access to that knowledge.

1:08:49 So that's a double problem.

1:08:51 So what should third countries do?

1:08:52 And this is a question we really should think

1:08:54 hard about because we've seen too little research.

1:08:57 One conventional classical answer is don't retaliate,

1:09:00 turn the other cheek.

1:09:02 You know,

1:09:02 Marilla has done nice CGE work showing that

1:09:04 even if your trading partner behaves perversely,

1:09:06 it's first best for you to open up.

1:09:09 The more interesting question is a work that I've been doing with Maggie Chen,

1:09:13 which is that,

1:09:14 you know,

1:09:14 we are used to thinking of what you do when some two countries form an agreement.

1:09:19 What is the best policy for third countries?

1:09:22 You have to turn that question on its head.

1:09:24 If two countries form a disagreement,

1:09:27 what should you do?

1:09:28 And one simple,

1:09:29 nice insight is it's better to be a hub than a spoke.

1:09:33 Don't join either of them.

1:09:35 In the isolation of a spoke

1:09:38 by forming an exclusive trading block.

1:09:40 So one other nice point you made is why these models are a little unrealistic

1:09:45 because they assume

1:09:47 that the rest of the world will simply stampede into blocks,

1:09:51 but there is that risk

1:09:53 because of segmented standards

1:09:55 and ultimate

1:09:56 beneficiary.

1:09:57 But without that,

1:09:58 the optimal policy for third countries like in my region,

1:10:01 ASEAN.

1:10:02 Countries are trying to negotiate

1:10:05 AEP and hold China so form,

1:10:08 uh,

1:10:08 and also,

1:10:09 unfortunately with the United States,

1:10:11 the Indo-Pacific Economic framework is not a trade agreement.

1:10:14 So thinking about that,

1:10:15 and the final point is a broader point about multilateralism

1:10:19 that we have made in the WDR thanks to your excellent work there also,

1:10:23 that we need to cooperate beyond trade to keep trade open,

1:10:27 that this Danny Roderick point that this is too much.

1:10:31 Globalization and cooperation is wrong.

1:10:34 There is too little.

1:10:35 You need to cooperate on taxes,

1:10:37 on standards,

1:10:38 on regulations,

1:10:40 and that's how you can make trade stay open.

1:10:43 But thank you very much for

1:10:45 brilliant presentation and inspiring me to provide some footnotes.

1:10:48 Thank you.

1:10:50 Thank you.

1:10:53 Please check your record message,

1:10:55 something is wrong with it.

1:10:58 Sorry,

1:11:00 Hello.

1:11:02 You said something is wrong with me.

1:11:04 OK,

1:11:04 well,

1:11:04 thank you.

1:11:07 Thank you

1:11:08 for those,

1:11:08 uh,

1:11:09 insightful and,

1:11:10 and,

1:11:10 and,

1:11:10 and passionate,

1:11:11 uh,

1:11:12 comments.

1:11:12 Um,

1:11:13 so before turning it over to Q&A,

1:11:15 just we,

1:11:15 we have about 15 minutes more,

1:11:17 so I don't want to take up

1:11:18 too much time just with your reaction,

1:11:20 but if you have a brief reaction to some of Adi's comments,

1:11:22 and then we'll open it up.

1:11:24 I mean,

1:11:25 so um.

1:11:27 With the detail

1:11:29 Uh,

1:11:29 OK.

1:11:30 With,

1:11:30 you see,

1:11:31 I've never come to this room.

1:11:33 With Aida,

1:11:34 we discussed these issues and we are on the same page on all of that.

1:11:38 Uh,

1:11:38 uh,

1:11:38 I think what I would say that,

1:11:40 uh,

1:11:41 to me it's,

1:11:41 uh,

1:11:41 one part that is fascinating is indeed working more

1:11:44 on the standards and in particular this interconnect standards,

1:11:47 which is something that again I think the smartphone industry,

1:11:50 it's interesting

1:11:51 because,

1:11:52 um,

1:11:53 uh,

1:11:53 it's a similar story with uh that uh that we see with manufacturing.

1:11:58 There are a number of Standards that are proprietary and that can be controlled,

1:12:02 but it's true that the world of open source is changing dramatically,

1:12:06 and a lot of the standards

1:12:08 are done by an incredible amount of spontaneous cooperation,

1:12:13 first of all by the UN agencies that people think are useless,

1:12:16 but they actually set to the basic predictability

1:12:20 for then congregations of private sector entities to spend.

1:12:25 Uh,

1:12:25 time,

1:12:26 money,

1:12:26 and human resources in coming together and doing this common standards,

1:12:31 and I think this sort of uh

1:12:33 uh decentralized way of producing that seems to

1:12:36 be very inherent in the digital economy,

1:12:40 uh.

1:12:40 Makes it very difficult to reverse that

1:12:43 because

1:12:45 some researchers in Taiwan studied that

1:12:48 two companies,

1:12:49 one that adheres to the standards and tries to use this open source.

1:12:56 Type of public good

1:12:58 would be able to market a product with 9 months in advance

1:13:03 to a company that does the same,

1:13:05 but by doing it only through proprietary standards.

1:13:08 So I think that definitely that's an area we should look at.

1:13:11 And the second is,

1:13:12 again,

1:13:13 that even with the green uh subsidies and policies,

1:13:16 I think it's,

1:13:16 uh,

1:13:17 I totally agree with you that uh

1:13:19 Uh,

1:13:20 having the political economy approach and understanding,

1:13:22 uh,

1:13:23 you know,

1:13:24 the determinants of these policies is important.

1:13:27 But the other dimension,

1:13:28 and that's what we are doing with Paulo Bastos and Catherine Stapleton

1:13:32 on,

1:13:32 uh,

1:13:33 how technology diffuses because of firm to firm networks

1:13:38 irrelevant to what the policies do.

1:13:41 Uh,

1:13:41 and there again,

1:13:42 uh,

1:13:42 uh,

1:13:43 I think that the,

1:13:44 the,

1:13:44 the,

1:13:44 the,

1:13:45 the,

1:13:45 the footnote is,

1:13:47 uh.

1:13:47 Uh,

1:13:48 perhaps we should start considering a world where these

1:13:51 large corporations are entities owned part of nations.

1:13:55 And so when we think about regulations,

1:13:57 we should really change the way we think of political economy,

1:14:01 move away

1:14:02 from a place where nations are the,

1:14:04 the,

1:14:04 the monopolists of regulation,

1:14:06 and start thinking of these global policies as,

1:14:10 you know,

1:14:10 additional actors that interact in a strategic way

1:14:13 with nations and see what that gives.

1:14:16 Thanks.

1:14:19 Thanks,

1:14:19 Dary.

1:14:20 Um,

1:14:20 we don't have very many questions online,

1:14:22 so let me look first in the room if anybody has any questions.

1:14:26 Um,

1:14:26 maybe just raise your hands so I get a sense of how many people are interested.

1:14:29 OK,

1:14:29 so

1:14:30 let's go here,

1:14:31 Govinda,

1:14:31 and then at the back,

1:14:32 and then here,

1:14:33 we'll take 3.

1:14:38 First of all,

1:14:38 thank you very much,

1:14:39 uh,

1:14:39 Daria and

1:14:41 Aditya.

1:14:41 Very interesting

1:14:43 and very helpful presentation,

1:14:44 at least for me because I don't do that much work on trade.

1:14:48 So I have,

1:14:49 uh,

1:14:49 one

1:14:50 observation and perhaps the question is that about the wind shifting

1:14:54 and,

1:14:55 you know,

1:14:56 discouraging of of the trade of the trade protectionism.

1:14:59 So

1:15:00 my thought is that uh the green policy so far

1:15:04 basically they're providing the subsidy to on the demand side

1:15:08 that mean deployment of the technologies

1:15:10 rather than production of the technologies

1:15:12 that is happening in many of our client countries.

1:15:15 So what does it mean that's

1:15:17 that means there's an increasing demand

1:15:19 but these countries don't have a capacity to manufacture these technologies

1:15:23 that means they have to import.

1:15:24 So it means it might have increased the trade of these

1:15:27 clean technologies.

1:15:29 The second point is that in many countries

1:15:32 they have uh

1:15:33 uh some sort of the import duty reduction

1:15:36 to promote the import of these technologies

1:15:39 so that might have also increased the

1:15:41 trade of these clean technologies.

1:15:44 So my question is that

1:15:46 do you have any concrete evidence so far

1:15:50 whether

1:15:51 these green policies or clean policies

1:15:55 decrease the kind of the trade of technologies.

1:15:58 In future it might impact

1:16:00 because the EU has launched the CBAM,

1:16:02 this carbon border adjustment mechanism,

1:16:05 so that will be started in October this year.

1:16:08 They will monitor the

1:16:10 carbon intensity of the import

1:16:12 they have the imported goods,

1:16:14 then they will,

1:16:15 uh,

1:16:15 impose the tax,

1:16:16 the border tax,

1:16:18 starting 2026

1:16:20 based on the emission.

1:16:21 Price they face

1:16:23 I mean it will definitely

1:16:25 impact adversely,

1:16:26 uh,

1:16:27 the import of

1:16:28 of the of the trade of the

1:16:29 the these goods,

1:16:31 many carbon intensive goods,

1:16:33 but until now,

1:16:34 so I'm very curious to understand whether there's any empirical evidence

1:16:38 of discouragement of the trade of clean technologies

1:16:42 because of the environmental policies.

1:16:44 Thank you.

1:16:50 Great,

1:16:50 thank you,

1:16:51 Martin Pionkowski,

1:16:52 lead economist at FCI.

1:16:53 Uh,

1:16:53 congratulations to Daria for,

1:16:56 uh,

1:16:56 an amazing presentation with,

1:16:58 I think,

1:16:58 in a,

1:16:58 in both form and content could be a blueprint for

1:17:01 how to present analytical work.

1:17:03 Uh,

1:17:03 it's truly impressive,

1:17:05 um,

1:17:05 and I also like the much more nuanced and much more optimistic take on,

1:17:09 on the what's going on in the globe with the global value chains.

1:17:12 I think

1:17:13 it stands in,

1:17:14 in some contrast to the doom and gloom that we have heard during the spring meeting,

1:17:18 so I,

1:17:18 I appreciate that.

1:17:19 But I wanted to provoke you with 3 points that

1:17:23 could be made by people that are much less worried about

1:17:26 fragmentation and

1:17:28 And the restructuring global value chains,

1:17:29 one on resilience,

1:17:31 on climate change,

1:17:31 and on premature deindustrialization.

1:17:34 On resilience,

1:17:35 people,

1:17:36 a lot of people would be saying that

1:17:39 in fact we are what what is happening now with the global value chains,

1:17:43 we are moving away from what has been excessive

1:17:46 and not enough in its sort of excessive

1:17:48 globalization or not sufficient fragmentation because after all

1:17:52 as much as we can calculate

1:17:54 aspirational costs of fragmentation in the future

1:17:57 we have already as the world economy

1:17:59 incurred.

1:18:00 Real costs

1:18:01 of not enough fragmentation because of the

1:18:05 of the disruption in supply chains that happened during the

1:18:08 COVID and the world's economy arguably lost trillions of dollars

1:18:12 because of the shocks where apparently efficiency

1:18:14 has been much more important than resilience.

1:18:16 So the question is,

1:18:17 aren't we actually going back to to uh closer to an optimum rather than away from it.

1:18:22 Second,

1:18:23 on climate change,

1:18:24 I really liked your

1:18:25 your point that a lot.

1:18:26 Of these restrictions and increase in protectionism

1:18:29 can be explained by um

1:18:31 by efforts to actually subsidize climate change which is obviously

1:18:35 which we all care about so I'm wondering if you could

1:18:38 elaborate how much of this increase in protectionism could be explained by

1:18:42 the sort of green climate change related policies and finally

1:18:47 we at the bank have been arguing and started you know

1:18:49 Danny Rodrick started it but we we picked up this narrative

1:18:53 that.

1:18:54 Uh,

1:18:54 all developing countries are deindustrializing and,

1:18:57 uh,

1:18:57 China just doesn't,

1:18:58 it's just too big.

1:18:59 You cannot compete with China.

1:19:01 Now we have a situation where in fact,

1:19:03 due to fragmentation and decoupling,

1:19:05 uh,

1:19:06 a lot of these countries are getting a second chance.

1:19:08 I worked on Vietnam and Aditya mentioned it.

1:19:10 In Vietnam is an obvious case of a country that is benefiting.

1:19:14 Eastern Europe is benefiting.

1:19:15 A lot of other countries around the world can benefit.

1:19:18 So perhaps the premature deindustrialization could actually change because

1:19:21 of the opportunities that are given by this.

1:19:24 So let me sum up by sort of asking you and taking

1:19:27 these three arguments in turn and get your views on it.

1:19:30 Thank you.

1:19:33 Uh,

1:19:34 thanks a lot.

1:19:35 My name is Sergio Martinez,

1:19:36 and I'm here visiting from Geneva,

1:19:37 Switzerland.

1:19:38 I have a background working with the WTO UNCTA at ITC.

1:19:41 So it's a pleasure to be back in Washington DC after a long time.

1:19:44 So my question,

1:19:45 I want to follow up with Daria mentioned in the beginning.

1:19:48 So I,

1:19:48 I found very interesting that the,

1:19:50 the research that you guys have done have found that,

1:19:52 uh,

1:19:52 the trade response to the global shocks has been one of resilience,

1:19:56 but at the same time there is a sort of protectionism.

1:19:59 Which means that for developing countries trade

1:20:01 could be appealing as a source for developing their policies to respond to

1:20:07 the

1:20:07 the world of poly crisis and also to develop resilience.

1:20:10 I was wondering

1:20:12 at the World Bank,

1:20:13 what is the approach that you guys are taking for providing assistance to

1:20:17 to countries in developing the right policy toolkits or the policy needs.

1:20:22 On that

1:20:23 in which

1:20:24 perhaps trade policy may not be the the first or second best choice,

1:20:27 but maybe that could be complementary to other policies

1:20:30 and some colleagues mentioned environmental policies,

1:20:33 but I guess another important

1:20:35 other dimensions that are important to the table is,

1:20:37 uh,

1:20:37 science,

1:20:38 technology,

1:20:38 and innovations

1:20:40 policies

1:20:41 which could also be complementary to those that affect trade to some capacity.

1:20:45 So thanks.

1:20:47 Thanks.

1:20:48 And just like you,

1:20:48 there is a question on the chat from Joan who,

1:20:50 who asks,

1:20:51 is trade likely to recover in the post pandemic era?

1:20:54 So I guess there's still some questioning about how optimistic or pessimistic

1:20:58 one should be about the impact of all these jobs,

1:21:00 so.

1:21:01 Back to you.

1:21:10 OK.

1:21:10 On,

1:21:11 um,

1:21:12 so the,

1:21:12 the first question was on the evidence,

1:21:15 uh,

1:21:15 of whether green policies,

1:21:17 uh,

1:21:17 uh,

1:21:18 decrease the trade in green technology.

1:21:21 I mean,

1:21:22 it's,

1:21:22 it's early,

1:21:23 right?

1:21:23 I mean,

1:21:24 uh,

1:21:24 both in our research and in the data in the sense that

1:21:27 A lot of the policies are being formulated,

1:21:30 and the policies that have been for sufficient time in place

1:21:34 are just too small to change things.

1:21:37 However,

1:21:38 in,

1:21:38 um,

1:21:39 the parallel research that we're doing with Paulo

1:21:42 here in the room and Catherine Stapleton and,

1:21:44 uh,

1:21:45 uh,

1:21:46 and Jacob Grispan,

1:21:47 uh,

1:21:47 uh,

1:21:48 what we find is that,

1:21:50 so what we ask there is,

1:21:51 uh,

1:21:52 how the Russia-Ukraine war.

1:21:54 Change to what the companies do in terms of adoption

1:21:57 of green tech and uh recruitment of experts around that.

1:22:02 And so what we find is that,

1:22:04 uh,

1:22:05 um,

1:22:06 the,

1:22:07 the generation of techno or at least the the the companies

1:22:11 that do seem to be very active,

1:22:14 both in their company earning calls

1:22:16 and in the job market around these areas are concentrated in very few countries.

1:22:21 So there is a huge,

1:22:22 uh,

1:22:23 I mean,

1:22:23 it's part also the bias of the data we have,

1:22:25 but

1:22:26 we clearly see the concentration in very few countries.

1:22:29 And that's really the question that,

1:22:32 I mean,

1:22:32 going forward,

1:22:33 something that we will have to track is,

1:22:35 uh,

1:22:35 are these,

1:22:36 uh,

1:22:37 firm to firm linkages strong enough to allow for

1:22:40 the diffusion just because it's in the interest,

1:22:43 just because the economics,

1:22:46 the economic gains of that is too big.

1:22:49 Uh,

1:22:50 to stop that,

1:22:51 or will,

1:22:52 uh,

1:22:53 you know,

1:22:54 policies that might try to,

1:22:56 uh,

1:22:58 you know,

1:22:58 to,

1:22:58 to get in that kind of consideration be,

1:23:02 uh,

1:23:02 strong enough and go in the direction of discouraging that.

1:23:06 I think it's an open question,

1:23:08 but certainly something,

1:23:09 uh,

1:23:09 that we will be interested in pursuing.

1:23:12 Um.

1:23:14 On mar marching questions,

1:23:16 I think really the,

1:23:17 I mean,

1:23:18 your three questions in the end,

1:23:20 to me,

1:23:20 are nuances of the same question,

1:23:22 and I think the question is,

1:23:24 uh,

1:23:24 Uh,

1:23:25 going alone

1:23:27 or doing it cooperatively,

1:23:29 really.

1:23:29 And I think it's really more about,

1:23:32 and I think both what Adi and I are is clearly we are on the camp of thinking

1:23:37 that from an economic point of view it makes sense to do things in a cooperative way

1:23:42 that a lot of the modern economy works

1:23:46 in a cooperative way,

1:23:47 a way simply because it's too complex for individual countries to be able

1:23:53 to.

1:23:54 You know,

1:23:54 to,

1:23:54 to con to build enough,

1:23:56 uh,

1:23:57 uh,

1:23:58 uh,

1:23:59 to,

1:24:00 to compete,

1:24:01 and I think the kind of Danny Roderick camp is the other one.

1:24:05 He,

1:24:05 he,

1:24:05 he doesn't think that this,

1:24:07 or he thinks that the cooperative way of

1:24:11 operating in the space is too costly.

1:24:14 Uh,

1:24:14 so,

1:24:15 uh,

1:24:15 that's why,

1:24:16 uh,

1:24:17 specifically to your questions,

1:24:19 uh.

1:24:20 Uh,

1:24:21 the resilience,

1:24:22 uh,

1:24:22 sure there have been costs,

1:24:24 but as I said,

1:24:25 it's important to look what these costs are

1:24:28 relative to the correct counterfactual,

1:24:31 which is not a world absent of shocks.

1:24:33 It's a world where

1:24:35 the same COVID has had very um.

1:24:39 Important shocks that have been concentrated and

1:24:42 where trade actually has smoothened out those shocks

1:24:45 and there is Ana Fernandez that has a favor out on

1:24:49 precisely the impact on firms of COVID

1:24:51 where shows precisely that the firms that were more

1:24:55 Engaged in global value chains had a bigger hit

1:24:58 from the first phase of COVID,

1:25:00 uh,

1:25:00 uh,

1:25:01 where,

1:25:02 uh,

1:25:04 if they were more exposed to China,

1:25:05 but then those are the ones that bounce back more quickly.

1:25:08 So there is a dynamic effect as well to take into account.

1:25:12 Uh,

1:25:12 so that's,

1:25:13 um,

1:25:14 I think that's an excellent contribution by Ana on that.

1:25:19 Um,

1:25:20 I,

1:25:20 I,

1:25:21 I,

1:25:21 so,

1:25:21 on,

1:25:22 on the green policies.

1:25:24 I hope the message is not that

1:25:26 a lot of what we see in new protectionism is due to the green.

1:25:30 So what we were asking is,

1:25:32 uh,

1:25:33 do green policies also have

1:25:37 reflect

1:25:38 broader trends that we see,

1:25:40 um,

1:25:41 And the broader trends is that in a number of areas,

1:25:46 be it because you want to increase jobs at home,

1:25:49 be it because you want to worry about just strategic security,

1:25:53 be it because you want to worry about

1:25:55 the climate crisis or other crises,

1:25:58 there seem to be a lot of subsidies and so all the good old Industrial

1:26:03 policy

1:26:04 and it seems that one component of how we

1:26:07 are trying to operate around the green shift is

1:26:09 through subsidies and so it's more of a question

1:26:12 of really the political economy of going through subsidies,

1:26:17 what it means,

1:26:18 and so on.

1:26:20 Um,

1:26:21 yeah,

1:26:21 so that's more or less.

1:26:23 My answer.

1:26:24 Um,

1:26:25 on the approach of the World Bank,

1:26:26 uh,

1:26:27 on how to operate in this new environment,

1:26:29 I mean,

1:26:29 so,

1:26:30 uh,

1:26:31 it's not anymore my job.

1:26:32 It used to be.

1:26:34 So I defer to the colleagues in EII,

1:26:36 but I think there is a big reflection on what to do.

1:26:39 To me,

1:26:39 It's obvious what,

1:26:40 uh,

1:26:40 Aditya said

1:26:41 that for us,

1:26:42 an important way to,

1:26:45 to operate there is to sort of

1:26:47 really this idea that perhaps it's in the best

1:26:51 interest of our client countries to become the hub

1:26:54 of,

1:26:55 uh,

1:26:56 you know,

1:26:56 of,

1:26:57 of this new system when

1:26:59 the hubs become

1:27:00 reluctant to continue to play the hub.

1:27:04 And the second is that for a lot of our client countries,

1:27:08 uh,

1:27:08 they're small

1:27:09 and they have minimum scale achievements to reach.

1:27:12 So just,

1:27:13 it's not gonna change the nuts and bolts of what they need to

1:27:16 do in terms of trade liberalization because they are at such a low level

1:27:22 that really I think the

1:27:24 China,

1:27:25 US,

1:27:25 uh,

1:27:26 Um,

1:27:27 decoupling is not going to change,

1:27:30 uh,

1:27:31 you know,

1:27:32 the gains

1:27:33 for from

1:27:35 achieving some minimum scale

1:27:38 of production

1:27:39 and from facilitating the,

1:27:42 you know,

1:27:42 the imports,

1:27:44 uh,

1:27:46 or,

1:27:46 or,

1:27:46 or the exports,

1:27:48 uh,

1:27:49 through measures of

1:27:51 trade facilitation or,

1:27:53 in fact,

1:27:54 I mean,

1:27:54 um,

1:27:55 I,

1:27:56 I find it always fascinating and interesting,

1:27:58 uh,

1:27:59 that the estimated impact of trade facilitation,

1:28:04 uh,

1:28:04 improvements is so high.

1:28:06 It's like,

1:28:06 um,

1:28:07 Uh,

1:28:07 you know,

1:28:08 you do either you do it with quantitative spatial

1:28:11 models or you do it with general equilibrium models.

1:28:14 It's fairly high on welfare.

1:28:16 And I think it,

1:28:17 the message is really that there is so much that can be done by

1:28:20 still,

1:28:21 uh,

1:28:22 by liberalizing,

1:28:23 uh,

1:28:23 and,

1:28:24 uh,

1:28:24 eliminating,

1:28:25 uh,

1:28:25 hurdles at that low level that there is a lot of

1:28:29 untapped scale economies at the low end to be also captured.

1:28:33 And that agenda,

1:28:34 I don't think should change at all.

1:28:36 Thanks.

1:28:39 Thanks,

1:28:39 uh,

1:28:39 we've reached time.

1:28:40 Let me give Adi one sentence,

1:28:42 just one response.

1:28:43 Go.

1:28:44 The Inflation Reduction Act in the United

1:28:46 States is granting huge subsidies for production,

1:28:49 for innovation

1:28:51 conditional on the use of production in the United States

1:28:55 using local contents,

1:28:56 local employment.

1:28:58 OK,

1:28:59 so with that,

1:28:59 let me um thank everybody for your participation.

1:29:02 Um,

1:29:03 Daria,

1:29:04 Adie,

1:29:04 um,

1:29:05 congrats,

1:29:06 um,

1:29:07 and,

1:29:07 uh,

1:29:08 let's,

1:29:08 uh,

1:29:08 end it there.

1:29:09 Thank you.

1:29:15 Yeah.

1:29:21 So yeah,

1:29:21 that's that's nice.

1:29:31 So this

1:29:33 concept

1:29:36 2:30

1:29:37 2:30.

1:29:39 I didn't see.

showAllTimestamps

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transcript

My name is Dion Filmer. I'm the director of the Research Group here at the World Bank. Um, welcome to this April edition of our Policy Research talk series. Um, as many of you know, these are a chance for us to share what's coming out of the Research Department with colleagues in the department and the rest of the World Bank, and beyond. Um, I'd like to welcome the audience, both in the room, on, um, Webex as well as on YouTube. Um, today I'm very pleased to introduce my colleague Daria Taglioni, the Research Manager of the Trade and International Integration team here in the Research Department. She'll be looking at recent developments in the global economy that could threaten trade-led development. As you all know, globalization has played a significant role in shaping the world economy, but rising protectionism, trade tensions, and geopolitical challenges are casting doubt on globalization's future. So Daria will be discussing the current state of globalization with an eye towards answering the question of whether globalization can continue to be an important driver of economic growth and poverty reduction. In addition, we're extremely grateful to have uh our good friend here, Aditya Matu, uh as I discussion today. Addie is the chief economist of the East Asia and Pacific Region of the World Bank. He specializes in development, trade, and international cooperation, generating research and, uh, providing policy advice to governments. He was also the co-director of the World Development Report 2020 on global value chains. Uh, Aditya has published widely on topics such as development, trade, trade and services, and international trade agreements in academic, uh. Journals, uh, with much of this work having been done while he was a colleague of ours in the research department. Uh, so the session today, I'll ask Daria to talk for about 45 minutes, after which we'll hear from Daria, uh, from Aditya for about 10 to 15 minutes. Uh, we'll conclude with some questions and audience, uh, questions and answers from the audience, Q&A with the audience. Uh, if you have any questions, please use the raised hand option in Webex or if you're in the room, raise your hand, uh, or signal to me in the chat that you have a question. If you're on YouTube, please use the chat function there and that question will get relayed to me. Uh, just a reminder, we are recording and also if you're online, please mute, uh, if you're not speaking. So with that, over to you, Daria. OK. Thank you and um. So, certainly, ah, I think the first thing is to understand how to Uh, OK, perfect. So certainly there has not been, uh, a paucity of discussions around this topic in these days at the spring meetings. Uh, what I'll do today is to give, uh, um, um. To start with, uh, a couple of puzzling, uh, trends and, and then to, um, to give, uh, out of the research I've been doing, uh, with colleagues here at the bank and with, uh, co-authors outside for possible, um, elements that can help explain this puzzling trends. The first trend is that 5 years into the Trump war, China's importance in global trade has not diminished. In fact, it has increased. Uh, these two charts represent the World Trade Network. Um, this is, uh, overall goods in 2015 and in 2021. It's probably difficult to see the precise measure of the bubbles, but actually the bubble for China that explains the importance of China and world trade, it has increased, and this is true by taking all different metrics of network analysis and so. To show this more clearly, I'm looking here at three measures of centrality import centrality, export centrality, and a measure of spatial centrality. Import and export centrality are akin to market shares in global trade. And if you look at them, uh, so the, the base year is 2000 is 2000, uh, in which, uh, I set it equal to 1. And if you look at the growth, um, export, uh, central, uh, in, in particular, um, Uh, export centrality, but also import centrality increased. Uh, spatial centrality increased the most. Spatial centrality is a bit, uh, it, it's basically, it's a different type of measure. It's more linked really to, to the geography of where global trade happens, and it reflects in part that. Has become a big engine of global trade, but if you take imports and exports, you see that they became 4 times as much. So the question is what happened at the same time in the US. It has marginally reduced its centrality along this import and export import and export network measures. The other interesting fact is that, um, so this is a chart which you probably saw when we did the World Development Report 2020, except that this version has 3 more, actually 5 more years in the data. And what we see is that at the time we were really discussing the sort of leveling off of global value chain growth where global value chain here is used by is defined by using the definition by Alessandro Borri and Michele Mancini on crossing two borders. So for value added to cross two borders. At least two borders, 2 borders or more. And so what has happened since last time we saw this chart, which was up with the data up to 2000 to 2015, is that after this period of stall in the last 3 years, the share of trade that is GVC, so that it crosses two borders has increased. And so we always say that trade is not about countries but it is about firms. So the last dimension I wanted to check to understand whether these patterns are going in one same direction was to look at firm to firm linkages. And so with a colleague. We are exploiting a database where we have information about firm to firm linkages, meaning if firms are customers of another firm, if they are suppliers, or if they entered in some partnership agreement, be it technology, research and development, co-development. Um, major, uh, financial, um, and what we see in, uh, in, in this chart actually in the, uh, in the bars, in the Y and in the X bars, you have respectively the share of overall links that firms established, um. In, I mean, and, and, and the data set goes from 2014 until 2022, and, and so we on the y axis we see the share of links that are with global partners. So partners that are not from the same country and not from their same region. Then on the x-axis we see the share of regional links. So with partners in neighboring countries. And then of course the complement. What we don't see is domestic partners. And so what we see from 2014 until 2019 was an unabated pattern towards internationalizing more firm to firm linkages. Uh, what happened since 2019 was that there has been some uh shedding or some a more than proportional. Amount of new linkages with either with global partners and then since 2020 also with domestic partners. But the point here is that again five years into this global trade tensions, we see that actually the global links. Held up much better than the regional links. So if anything, in a way, these three charts through different, different angles tell us that despite all the shocks and despite the volatility that this has created short term to global trade, it seems that the response of global trade for now has been one of resilience. So what is it that we can say? What, what, what is it that we can say that might explain this, and it could be a first phase, right, but it's again 5 years into a series, an abated series of shocks. So what are the explanations that will bring to the table? One is that when we hear a lot. That the world has turned protectionist, but then when we look at policy data, we actually see contrasting trends. And so I think that there as well, the picture is more nuanced. Uh, the second question, uh, is, uh, the second issue is that this new protection, so we certainly see some dimensions of new protection. And so this new protection is having effects on third countries, but in unexpected ways. The third point is that when we look at these emerging studies on deglobalization, the impression is that they risk both overestimating the feasibility of deglobalization, but at the same time underestimating their true cost. And, and the 4th point I will make is that uh even in a world in which there is risk, it is not obvious that deglobalization, regionalization, reshoring, or French shoring are the optimal policy responses. So let's start with the contradictory policies. So the global trade alert is the prime database in trade policy since the global crisis that tracks down. Measures that country take and that can have either harmful effects or pro-liberalizing pro-trade effects. And so what we see from this chart is that certainly the number of harmful measures has increased and that has increased exponentially in the last couple of years. Uh, however, also the number of liberalizing measures has been increasing. And so, let's look at these two lines, what's behind them? So, certainly, um, we see, um, that one area of activism in policies is the policies to enact the green shift. And so the question we had, and we initiated the project to look into that question one year ago, is, are green goals contributing to the surge in protectionism that we observe in the data? And so this is a work in progress with um Emma Eisbett and Alexandro Sam Sammartin at the Australian National University and with my colleague Anna Fernandez, Anne Beck, and Caroline Fisher. And so what we see is that the number of trade-related climate policies has increased exponentially in all G20 countries. We are tracking here across the G20 countries 1800 distinct policies since 1990 until 2022. Actually, even we are the ones that until March 23rd, to be precise, we are still collecting the data, but, but we are also analyzing the ones we already have. And so what we see is that all countries increase the number of green policies, and that actually has an impact on trade. And here the impact can be positive or negative. I'm not saying that it is negative, but we see that not only. The usual suspects like Germany is the darker green line, the US is the lighter blue line, are increasing these policies, but also middle income countries here we reported Brazil and China, but, but then also countries like Saudi Arabia that are predominantly commodity, still specialized in commodities have enacted this shift in policies. And so the question is, are these measures harming trade or helping trade, or trade is just a bystander. And so what we find, we are still analyzing this question, so I don't have a definite answer. But one thing that we started doing was to ask if there was an explicit motivation on. Managing trade in enacting these policies and so here we have the zero, the red line is the baseline situation of policies in the year 2005, and what we see is that if we look in the description of the in the preamble, in the motivation of these laws, what has happened, we see that there has been an increasing, of course, an explicit climate motivation. But since 2005, since the, and, and at each um each round of data, and I will tell what the, what the data here on the X line represents, but at at each of these dates that we tracked, we see that there is an increasing reference also to. Concerns about the competitiveness of the economy and another growing trend is that there starts to be an explicit reference to leakage. Leakage in the environmental literature really reflects two concerns of economic activity. relocating to other jurisdictions because of, uh, um, because of, uh, environmental policies. And so these are signs that uh Trade is increasingly in the mindset of the regulators that that work on green policies. So the different data that you, the different data points that you see in the charts reflect important COP meetings such as Kyoto, Bonn, Cancun, Paris, and also the more recent events in trade like the post-COVID or the trade war. OK, so when we look at then, the other thing that we are looking in this data is to ask, are these, uh, climate-related policies that affect trade, um, aimed at, uh, um. Are they policies that change the relative price of goods or are actually coming in the form of green subsidies, and what we see from the data is that indeed they mostly come as Subsidies and these have experienced a significant increase since 2020, not only in the green agenda, but also more broadly. So the conclusion for this is that for this from from this set of slides is that certainly. Industrial policy is back. Now coming coming to the areas where actually we see still trade liberalization, these are from trade agreements. Countries are still negotiating more and deeper trade agreements, so the spike you see in 2021 is certainly. In part due to the UK actually negotiating agreements to reflect the provisions that were already in place but that were as part of the EU, so you should discount about 30. Agreements from that, but if you look at the overall situation, you still have that in the period since 2018 until 2021, netting out these agreements by the UK, you have 26 new agreements that are being negotiated, and a lot of these have deep provisions that that span both goods and services. Another, uh, interesting chart is actually from work by Aditya together with Ingo Borgert at the University of Sussex and uh Jocelyn Madeleine and Juan Marquetti at the WTO. This is also very interesting. What it shows, um, is the Services Trade restrictiveness index, and what DTN is called or find is that actually. Since the global crisis, the average level of restrictiveness in services trade has gone down. Of course there is a correlation with richer countries being more open, but we see that the restrictions have gone down for countries at all income levels. So the first point is that we have on the one hand. More subsidies, uh, and also for objectives such as the green shift, um, but on the other hand, countries are still actively negotiating both bilateral and regional agreements that go beyond market access, uh, issues, and that the services, uh, and the services, uh, sector is still being liberalized. So that's the first element. The second element is about the impacts of the US-China trade war. And so this is a paper with Penny Goldberg, Pablo Fagel Maum, Patrick Kennedy, and Amit Candelwal, where we look at the impacts of the US-China trade war on the reallocation of trade on a global level. So what happened with the U.S.China tariff war is basically the equivalent of taxing $450 billion US dollars in annual trade, and because of that offers a very interesting experiment in protectionism. Here what I'm showing is what happened, what the two countries' strategies in terms of changing tariffs have been. And so what we see is that the US tariff changes towards China have have touched pretty much all sectors. At the same time, the US has also taxed other countries in metals, and this is the red. The red, uh, line, um, uh, towards the bottom of the, uh, of, of the, uh, US, uh, uh chart. Uh, China's responded in a typical In a typical way by retaliatory tariffs on the US, but at the same time as as liberalized in the same areas, trade with with other countries trying to offset the effect of the additional cost that imposing tariffs on the US would have. And again, the tariffs have been across the board of sectors. So what has happened? The first thing that has happened is what any trade. First school textbook would tell you. There have been negative effects on US exports to China and on Chinese exports to the US. So these are exemplified that the two blue lines. Panel A reports China's exports to the US and Panel B reports the US exports to China. And uh and what happened in the targeted products was indeed the um uh this uh. This substitution away from this bilateral trade. By comparison, the gray line show what was happening before the trade war. Now, what, however, it also happened was that a number of countries, and here we have the 48 top exporters in the world that we tracked, uh, most of them actually ended up increasing trade in the sectors in the products that were targeted by the tariff, uh, by, by the, by the tariffs increases by the US or China. We see that some countries increase more, such as Romania, Turkey, Vietnam, and other countries less, but very few countries Ukraine, Egypt, Israel, and Colombia saw their Relative export growth in these targeted products decrease over this period of time. We stopped the analysis at 2019 precisely not to have the exercise affected by the pandemic. There is another interesting thing about this bystander effect. So what happened is that these countries indeed occupied some of the, of the space left open by um by the US in China imports and by China in the US imports. And again, the blue lines show how the these 48 countries increased the exports in targeted products to China and to the US respectively, um, and what was happening in the gray lines before the pandemic. But the more interesting and somehow unexpected fact was that they didn't, didn't reallocate their production away from the rest of the world, uh, to, to the US and China. They actually expanded exports also to the rest of the world. And so what we say in the paper is that there are, so the bystanders reallocate. The real location depends on whether they produce goods that are complements or substitute to the, to the products that have been taxed by the tariffs, but there is also a scale effect because they are able to produce at a higher scale thanks to the, um, thanks to the. To the additional exports to the US and to China, they are also able to expand to the rest of the world. Whether they are able to expand to the rest of the world or not depends on their supply side. So countries that have the space on the supply side to reallocate factors of production. Uh, will actually be able to, um, and, and that, or that have unused the capacity will actually be able to expand their product, their production and exports also to the rest of the world. And so the second element that I want to bring to this discussion is that indeed protectionism between the two largest trading nations can open opportunities for bystander. But this will happen only if, uh, first of all, the demand, and if the demand and the supply factors are are are working in favor of this of this to happen. OK, the third point I want to make is about. About the feasibility of deglobalizing and its costs. So we saw a lot of papers recently that try to estimate the costs of decoupling. Probably the two most famous are a paper by the WTO and a paper by the IMF, and these two papers, I mean. Different scenarios and different different assumptions, they sort of more or less say that the costs, the welfare costs of decoupling between the US and China range between 5% and 12%. They assume these are the costs if the world gets divided into economic blocs. So my point here is that these estimates do remain highly uncertain on two fronts. One is, as I said, that they overestimate the feasibility of decoupling, and the reason is that they assume that global firms will have many substitutes to choose from, which is, which I will try to convince you that at least in some critical industries is not the case. The second point is that they actually underestimate the potential cost of decoupling because they are not able to model the situation where these critical industries might actually not be able to function if the current global setting is taken away. So how do I do that again as an exercise we went with Um, co-authors are Eric Tun, uh, Tim Sturgeon, and Mark Dallas, uh, respectively at the University of Oxford, MIT, and Union College, New York. And what we did was to collect data from the smartphone industry. We collected data from a little less than 500 smartphones that have been issued since the creation of the smartphone in 2008. And we, this data are from tear downs are like industry data that tell us every piece of components that come in the phone, but then we also tracked the operating system, who does the stunt. What type of software for specific functions is is put in these phones, and we mapped who are the producers of all this and what share of the total cost of a phone they contribute to. Uh, and so I mean the phone as on average at this point has thousands of individual components and subcomponents, but just to simplify matters we said, OK, let's take the five main. Functions of a phone, the CPU, which is the brain, the semiconductor piece, the display and the camera, um, other wireless functions, the memory, and all the pieces that are needed for the network connectivity. So what we looked at in this first chart is to look at who are the producers of these different components in these different areas. And so what we find is that the producers are increasingly less companies, so there is a high degree of concentration. And so if you take the US Government guidelines of what it is defined as a concentrated industry, which is 0.25 of Nervinder Irshman index, you see that all of these functions by 2019 are too concentrated according to these guidelines. There are few producers and in fact we see it in the data where for any single. Um, uh, component where 10 years ago there were maybe 567 producers. Now we are down to 1 or 2. OK. So, because there are less producers, they obviously tend also, where they locate becomes increasingly important from a strategic point of view. And so here what you see is again for these five functions where the mobile component, so who is the main country producing this mobile phone component, so 72.5% of the CPU. of the value added of the cost share is produced in the US 11%, almost 12% in South Korea, and China does a showing with 13%, which increased rapidly. If I would have shown you the same data for 10 years earlier, China wasn't there. Uh, in memory, again, the US is the biggest provider, in display and camera in Japan. Network connectivities. Korea and other wireless functions is Korea, but what it's important really is to see is that a smartphone at this point in 2019 needs to be constructed in the world. There is not the possibility to actually move easily these functions that are, say, in South Korea into the US. And so we see that in the data. So this is again the Ishmanner Findal index for this, uh, uh, for, for these measures and how it progressed over time. And if you look at just row by row, you see the increasing concentration of this production and you can also see it from the mapping of the. Bilateral input and output in this data set that we reconstructed, you see that there are less linkages overall, but these are, these are remain geographically located in very dispersed locations across the globe. So the second, uh, so this is interesting. So we have an industry that is becoming concentrated in fewer global companies and activities, uh, families of activities get clustered in in specific locations. What is the interesting thing, however, is that while this all happened, actually the performance. The technical performance of mobile phones has increased in all functions incredibly. So these are like the annual, the compound annual growth rates of each of the main functions and within these families of functions, the subfunctions, and you see that I mean you can take any. Of these measures as a measure of increasing performance, they've been all increasing incredibly because even a 9% per year means basically 90% improvement, almost doubling the standards in 10 years. And at the same time, both the number of components that you find in each device and the average number of Suppliers that are needed to produce a single device have increased. So it's it's, it's, it's an interesting completely different way of thinking about how these industries are organized. And so the question is why an industry which is increasingly concentrated in terms of who does very specific niche activities. And and that these are located so far away from one another manages to have this type of performance improvement but also expand in terms of innovation, complexity, but also in terms of participation to producing this good and the answer we give in this paper is that in at least in digitally. Intensive industries, but our suspicion is that is the case also for other critical industries in a modern economy. The way firms behave has become what we call the massively modular system, which is in the end a decentralized system. We tend to think still of global value chains as industries dominated by elite firm that moves around at their own will as suppliers, but what is happening in the industries is a profoundly different story where actually there is more of an ecosystem decentralized where incentives are aligned and where there has been a lot of work in creating this interconnection or communication standards and where because of this. Collective shared way of working, incredible economies of scale could be achieved, which explain both the concentration in few firms of very specialized function and the fact that that each of these functions becomes then more systemic. Um, OK, so the last thing that we do in this paper, which I think is relevant to this conversation is to ask, OK, this is the system we are coming out from, and that on the one hand has, um, has been extremely efficient, but at the same time it has in itself the seeds for the geostrategic tensions that we see precisely because every function becomes more systemically important. And if it's located in a country that is not behaving in a friendly way, it can become a problem. And so we say, OK, what would happen if we do partial, if a country decides to do a partial decoupling here or a full decoupling? And so first of all, And this is work we are still sort of completing, but the first is that we look at the capital costs and we find that there are high capital costs in trying to do import substitution in a partial way. And if one wants to go for full decoupling, this cost becomes prohibitive. The second point is that reshoring in one segment, if you, if you target any of these segments as the policymaker, you might actually create new import dependencies in other areas without really knowing. And also that the industrial segment selected by the policymaker might not be the correct one. So what happens when you try to do full decoupling? Of course, if you try to do it in a relatively short amount of time, which in this industry means less than 2025 years, you might end up with a possible systemic failure simply because you do not have the hardware engineers, the software engineer, the experts, the the mathematicians that know how to work on doing that particular function. And you also lose this uh uh scale effect that we saw in the last 10 years. Uh, then of course there is something that that we've long known, which is that non-market driven investments tend to have an early obsolescence. There can be accelerated brain drain and loss of, in the short term, loss of quality, loss of product functionality, loss of innovation. In both cases, you will find also that there are interruptions in the ongoing collaborative technological learning, uh, and I think uh Aditya can speak to some of that because she has is just uh put out a paper that talks on that and interruptions in human resource development. OK, then, the last point I want to make is, is this one that even in a world where there is risk, it's not obvious that the globalization is an optimal policy response. So this is work with Alessandro Borin and Michele Mancini, and what we do in this paper is to look at. Country sector combinations of data from the multi-regional input output tables and so using the methodology that I mentioned before of distinguishing flows that cross two frontiers before. Ending in the end product versus um goods that do not cross a, a frontier at all, which are domestic output, remain as purely domestic output and um And, and uh flows that cross only one fron frontier that we call traditional trade for lack of a better word, we try to distinguish what is uh what happens when firms or when actually output of a country is exposed to uh to to domes to to domestic versus uh GVC related shocks. Now, a caveat, when I talk about the GVC related output, it's obviously, um, uh, uh, a subset of all GVC activity. And so the point is that it's a sufficient condition, meaning if a value added crosses two borders, it's for sure a global value chain. If it doesn't, it doesn't mean. That is not a global value chain. There can still be several producers organized uh in uh uh fragmenting production to do it. But anyway, if we look at this corner case of what we call here global value chain, we see that of course as a country's participation. Increases in this way of working, the exposure to shocks that come from the global economy increase, and this is something that everybody has pointed out. What we, however, point out is that we need to put that in reality, not to a counterfactual where there are no shocks, but to a counterfactual where actually there are shocks from the domestic economy or from shallower forms of trade integration. And when we do that, we see that it's true that the exposure to global shocks increases, but this comes on par to a declining exposure to more localized shocks. And then the next question was, OK, if there is this differential exposure to local shocks versus global shocks. Then the question becomes of whether countries are more exposed to global shocks versus Versus domestic or simple trade shocks on par. And so what we find is that for 90% of the countries and sectors that this type of dataset allows to track, the output volatility that is generated by a GVC-related demand shock is lower than the alternative scenarios of simple trade or of. Domestic output, we measure this by looking at the cumulative probability to to have a positive or a negative difference between the volatility generated by a GVC and a non-GVC shocks. And so you see that the cumulative probability approaches 1. On the negative side, which means that non-GVC shocks are more likely to hit any of the economies trapped in this data set. than GDC related shocks, and the answer which we find and which we give is that this is due to the fact that global value chain participation is associated with greater market diversification, and you can see this again by using the Er Findel Iman index of the final market concentration and relating it to GDC intensity. So again, to bring this more aggregate data to the firms, uh, what I, what I asked Anna if we could quickly do just to see whether we see similar evidence stemming from Uh, firm level, firm to firm linkages data, the data set that I showed at the beginning was to bring it to, to, to this data, and what we find is that if we, so the, the GVC exposure uh that we see there here we translated it in the firm number of links. Across borders and we related it to firm log sales in the in the left panel and to the volatility of firm log sales on the right hand side panel and we see that the uh that there is an increase in log sales uh with the uh so the. The log sales is increasing in firm links and the volatility is decreasing and even I think in another element that it's interesting is that this is even more the case during the years of shocks in in the uh the recent period 2018, 2022. So coming to the end, what are the conclusions and the policy implications? I went through these four elements that we have contradictory elements in trade policy and international cooperation, so it's not a black and white picture that the bystander effect of large decoupling exercises like the US-China trade war will can generate reallocations to the rest of the. World, but that country-specific demand and demand and supply factors matter. So I think a subtext of this is that the macroeconomic and the domestic institutions of countries that want to occupy that slack, that slack that might be free become even more important, not less important in a period of shocks and uncertainty. I also illustrated why why the decoupling is harder than you think. Simply, there are not an infinite number of suppliers to reallocate activity closer to home at will. Of the policymaker and that if this exercise it's tried out to its full extent might actually lead to some industries not being able to function. And finally, that because policies that try to deglobalize in one dimension or another lead to lower market differentiation, there might be cost, costs that are not accounted for in some of the policy discussions. And so what it means for policy for us. I think that one first point is that we need to factor in more in industrial organization models and discussion in trade discussions that specialization and scale characterize the modern economy and understand what this specialization scale at the firm, at the industry, and at the country level matter. And because specialization and scale increase, the switching costs increase for firms, for industries, and for countries. And in a world of a of a higher switching costs, the returns from coordination are amplified, which brings back the importance of having, um, An agenda where we try to deflate the this international tensions that are currently dominating the policy arena in the area of international trade and international relations. Um, what countries can do on their side, um, again, targeting market diversification remains important, and so it remains working on a domestic agenda, uh, macroeconomic and domestic institutions agenda that foster that market diversification. But then more important than ever, it's again to come to again a new consensus on what is a global set of rules where we can all comply with and what a global governance system should look like, because clearly the alternative of Individual countries driving their preferences through subsidies in an uncoordinated manner seems, uh, at least to uh uh to, to, to have some complications. Thank you. Thank you, Dario. So we're gonna turn it over to Aditya. Um, just while he's getting set up, just let me remind you if, if you're watching online, please, um, just flag to me in the chat that you have a question, and I'll call on you, ask you to unmute and ask your question, um, yourself if you can, um. OK, Aditya, thank you very much for inviting me and um thank you, Daria for another brilliant presentation full of knowledge and insight. Uh, my role in collaboration with Daria is usually just to channel the flood of ideas and to make sure that she puts them out in published form, but Daria is reluctant to make a compromise with imperfection. So the bank has made a compromise. So now Daria can write working papers, which she infinitely updates as she learns more and uh becomes closer to the truth. So, uh, in my new role, I am less cautious. So, my, uh, I will just present what are really some small candles in the face of this forest fire of ideas that Daria has presented. And, uh, I'll, I'll take these four points that Daria made very nicely, and, uh, Not in the order that she presented them, one that we now see contrasting policies, we see reform in some dimensions, and reversals and protection and others, that how it would be, you know, responding to this riskiness, uh, by turning inwards doesn't make sense, that These trade wars we're seeing are having unexpected and sometimes positive effects on third countries. And finally, that, you know, this is a very nice point that Daria is making, that on the one hand, deglobalization is going to be really hard, but if you force it, it's going to be really costly. So let me just make a few points, uh, quickly. You know, the first, understanding the new protectionism. For those of you who are culturally diversified, unlike my friend Kiki, who have seen this recent, uh, Indian movie called RRR which won this. So I was inspired by this because now we are in an era of PPP, CCC, DDT. So RRR is why do we see this new protection? It is because, you know, first phase was trade was seen as regressive, that industrial country inequality was because of trade, so we saw that phase. Then now we are in the phase of trade is seen as risky as somehow accentuating the vulnerability to acts of both God, which is natural disasters and pandemics, but also acts of, I should say, I would have said human rather than man, but I know. would never do these things like shutting off export supplies for food and medicines. So it must be acts of man, which also, you know, make you vulnerable to the fact that your neighbor, when they face scarcity, they shut off supplies. So how do you do that? So an institution like the World Trade Organization, which has done a lot of good, has been largely helpless in inducing people to share scarce products in bad times. So the third reason is rivalry. And the fact that, you know, the US is now seeing its hegemony erode and China's emergence, and I would argue, you know, there is a solution to the first, the inequality, you improve domestic policies, you cooperate on taxes, which empowers the state to help the poor and the losers. Riskiss is a little bit more complicated. We'll talk about. It's this rivalry, which is super destructive, because if you're bent on preventing the emergence of a rival hegemon, non-discrimination is very hard. But these are, now, let's turn to one specific example, which is these green subsidies. So in all these cases, since I'm in the company of my former colleagues who are all smarter than me, And these are, I'm going to present some questions about what we might think about. So, when we look at these protectionist green subsidies, which this nice new work reveals, You see, the classic climate question is always, you know, what is the optimal cooperative global tax or subsidy to attain environmental goals. So everybody says, you know, if you think of climate as a bad, you should just have a carbon tax. Then some people say, OK, maybe the property rights are not well defined. So let's think of the optimal climate subsidy. Now the classic trade policy concern is what is the impact of these local content requirements. This is our trade tunnel vision. How are they increasing the cost? And then you argue, hey, you are going to lose out on the benefits of these subsidies if you do this inefficiently by insisting on local content. So the real benefit of this subsidy is eroded by using inefficient methods. I think that analysis misses out on a crucial fact. The crucial fact is, for a long time, you have not had any meaningful climate action at all. The political economy, for example, in the United States, favored 0.0% carbon tax, and in many other countries you have fossil fuel subsidies rather than taxes. You are in effect for the first time seeing meaning meaningful climate action spawned not by climate policy. But by industrial policy. So what would you do if you took a game theoretic or political economy view of this? You would recognize that climate cooperation in the first best sense is not feasible. And if it's not feasible, The question is, would we get a better outcome on climate by allowing discrimination, harnessing the political economy of vested interests who say we're going to create local jobs and local industries, give us more subsidies, or would you do it by insisting on non-discrimination when everybody say, hey, hey, these subsidies are all leaking to the Chinese and the Japanese. We don't do this because then that'll. Reduce the political support for these subsidies. So you know, understanding what the trade-offs are in making these compromises, for example, accepting that if we really care about the climate, maybe we have to accept that you're only going to get climate action if people give up on trade. And you know, it's also worth thinking ahead, and this is not strictly related, but it's important for Dion and Art who are the. Opinion makers of this institution, that if you create new technologies, and for my friend who has been thinking about climate for a long time, if you get these new technologies, which are conceived of in this illegitimate, Political economy of industrial policy way, are they going to become global public goods tomorrow? Or will they become like vaccines which everybody holds on to? So I think thinking ahead a little bit to this question is, I think, really fundamental to the World Bank's contribution to the global public good and to the mitigation agenda. Let me turn to the second question, which was riskiness, responding to riskiness. Daria said why it is perverse to go back. And you know, to restrict, let me show you some evidence on what we learned from previous shocks. So, you know, when you think of the 2011 Tohuku earthquake. What did that do to people's choices of where to source from? And what we found in some work, which is interesting, that where there was low dependence on Japan, nothing much changed. Where people were highly dependent on Japan, they turned away from Japan. But This was the big shift, but what I find more interesting first from a development perspective, where did they go? They went to Vietnam, which had trade friendly policies. They didn't go to Indonesia, which had huge trade restrictions from a pure. Classical trade perspective, if you want to attract production and value chains, be open, improve logistics, all the things that we've been talking about in the bank, but you did not see reshoring and you did not see diversification. So this is the first puzzle, you know, this idea that you have a risky location doesn't create your, seem to create an overall sense that the world is a risky place, at least with this shock. And let's either distrust trade per se and come home, or distress, distrust any particular location and diversify. Perhaps because the fixed costs of diversification are actually really quite high. Now, it does raise a good and important question, and there's a very nice paper by Grossman and others. This is, you know, are we likely to get over divers under diversification because individual firms don't look at the There's a kind of coordination failure. Each firm rushes to maximize our profits and pick the cheapest location, but if all firms do that, that becomes, uh, overall country level excessive dependence on a particular source. Is that the problem? Or is it that because if you were the one person whose production was not affected by a shock, you reap such high rents that you. Over diversify. So this is less obvious intuitively, but you know, thinking about whether trade rules in a world where you are subject, as I said, to shocks made by God and by your trading partners, should you in that, if you, if the trading system cannot display discipline export restrictions, should it allow a kind of precautionary import policy? I think it's a question we should think about. Let me turn to. Uh, just one other point about this. Costs of diversification, you know, Mongolia is a country which has Russia in the North and China in the south. When the Ukraine war happened and COVID shock happened, the Chinese decided that Mongolian coal might carry COVID infection and shut off their export supplies. Russian Made it harder for Mongolia to import, so we had a meeting with the Mongolian finance minister, and he said our highest priority last time he came 3 years ago when I first joined, he said our highest priority is to diversify for productivity and growth. This time he said our highest priority is to diversify for food and energy to increase resilience. So we have to see that this insecurity and unreliability has a huge development tax, and how we advise our countries to navigate this problem that you can't tell them, trust us. Because now either you're going to impose sanctions in some state or you're going to disrupt the world. So what do you tell developing countries? How should they deal with this inherent insecurity in a world where you have, as I keep saying, both natural shocks and man-made shocks? Daria made very nice points about the unexpected effects on third countries. Just one point, these economies of scale. If this is excess capacity and scale, then why don't they realize them unilaterally? Why do you have to wait for protection in one market? Or if the firms are blind to it, why not subsidize them? Because then you'll get these huge economies of scale benefits. So as a, you know, microeconomics of all this, just thinking about what kind of equilibrium and how do you do the comparative statics and what. What are the other instruments which would help you to export, you know, when you're driven out of or give slight opportunities in one market, you start exporting everywhere. So that's one point. But then also Daria, you have thought more about these value chains than everybody else. So this is some work that we have done. Which shows that, you know, in this world, just looking at what's happening at one stage of production might not give the whole picture, because what we see is that as the US imposed restrictions on China, China's share in the US market went down. True, East Asia, particularly Vietnam share in the US market for final goods went up, but imports from China also increased to East Asia. So these 2nd order effects in the import market and see in your chart where you showed the effect of US restrictions, you didn't have China's exports there. Maybe China's exports are also going up because they are supplying the inputs which everybody else. So in a way, in order to displace China, countries are embracing China. My country, which remains suspicious of China, might be actually shutting itself out of the opportunity of actually taking advantage of the new opportunities. Same problem in Indonesia. So, again, thinking about what these effects are and how they will affect. And I thought you have slightly positive twist on this from a development perspective, I worry about, because, you know, as you nicely said, Daria, rules-based trade creates a predictable environment. Now we have politics making these, influencing these choices. And there the concern is that, you know, You create a less predictable environment. So the short term benefits might create long term uncertainty and therefore inhibit investment. So we have to as a multilateral institution, be a little bit careful about celebrating the incidental benefits of perverse policies. Final point. I think a very nice point you made about deglobalization being difficult but costly, but we should be alert. And I think we need to be alert first, because you could have segmentation of markets by standards. And this is something we don't fully understand. You know, just as two countries coming together and harmonizing their standards or mutually recognizing has a positive benefit on third countries because they can exploit economies of scale in integrated markets, two countries falling apart create negative effects. So, how big are those negative effects and what types of standards and products are subject to these risks? You know, when somebody says, I won't allow Huawei and 5G 5G into my market, what do we know? Will it create segmentation when one person says, I have high privacy standards, and another says, no, that those flows of components or data, are they going to hurt third countries because of the scope for economies of scale? The other thing that you could have, and I'm sure you've thought of, but you cannot do everything in one paper, is that, you know, when we look at these restrictions, they're not just restrictions on bilateral trade. They're now taking the form of, if I sell you, let's assume this is a semiconductor, you cannot sell this onwards. To anybody if it contains anything that I have. So there are ultimate consumer restrictions. And also, you see, normally you worry about rules of origin and preferential agreements. In a sense, relative to the world, the rest of the world has no preferential relative to China, the rest of the world has preferential access to the US market. So you could see rules of origin, ultimate input restrictions that I won't buy from. You if you have certain inputs now in a world where you're all integrated in the very nice way you described in global value chains, these ultimate restrictions could become analogous to rules of origin and free trade agreements or so, so even this incidental benefit that you're getting could get eroded by these restrictions on what you can do with the inputs I sell you or where you can source inputs. Which go into things that you sell to me. So we should, I think, think about these questions a bit more. Final point, there are restrictions that are already having an effect. So your pessimism about the scope of the restrictions doesn't include these restrictions on collaboration in knowledge. You know how hard it is for Chinese students to come here. You know, there are entity lists being published by the United States, and we have been able to show in this research that countries, which are firms are in sectors where there was collaboration in the sense of both knowledge flows with patents in my country, we're citing patents in your country or researchers in my country were working, the researchers in your country are hurting both innovation in China. And in the United States. And that could be a problem for the whole world, because if you have these bilateral restrictions on technology flows, you're reducing the global flows of knowledge, and that is costly for everybody, because especially at coming back to these green technologies, you know that China and other US both have a stake in them. If these don't become global, if you the two problems, you hurt the generation of the knowledge. And potentially hurt access to that knowledge. So that's a double problem. So what should third countries do? And this is a question we really should think hard about because we've seen too little research. One conventional classical answer is don't retaliate, turn the other cheek. You know, Marilla has done nice CGE work showing that even if your trading partner behaves perversely, it's first best for you to open up. The more interesting question is a work that I've been doing with Maggie Chen, which is that, you know, we are used to thinking of what you do when some two countries form an agreement. What is the best policy for third countries? You have to turn that question on its head. If two countries form a disagreement, what should you do? And one simple, nice insight is it's better to be a hub than a spoke. Don't join either of them. In the isolation of a spoke by forming an exclusive trading block. So one other nice point you made is why these models are a little unrealistic because they assume that the rest of the world will simply stampede into blocks, but there is that risk because of segmented standards and ultimate beneficiary. But without that, the optimal policy for third countries like in my region, ASEAN. Countries are trying to negotiate AEP and hold China so form, uh, and also, unfortunately with the United States, the Indo-Pacific Economic framework is not a trade agreement. So thinking about that, and the final point is a broader point about multilateralism that we have made in the WDR thanks to your excellent work there also, that we need to cooperate beyond trade to keep trade open, that this Danny Roderick point that this is too much. Globalization and cooperation is wrong. There is too little. You need to cooperate on taxes, on standards, on regulations, and that's how you can make trade stay open. But thank you very much for brilliant presentation and inspiring me to provide some footnotes. Thank you. Thank you. Please check your record message, something is wrong with it. Sorry, Hello. You said something is wrong with me. OK, well, thank you. Thank you for those, uh, insightful and, and, and, and passionate, uh, comments. Um, so before turning it over to Q&A, just we, we have about 15 minutes more, so I don't want to take up too much time just with your reaction, but if you have a brief reaction to some of Adi's comments, and then we'll open it up. I mean, so um. With the detail Uh, OK. With, you see, I've never come to this room. With Aida, we discussed these issues and we are on the same page on all of that. Uh, uh, I think what I would say that, uh, to me it's, uh, one part that is fascinating is indeed working more on the standards and in particular this interconnect standards, which is something that again I think the smartphone industry, it's interesting because, um, uh, it's a similar story with uh that uh that we see with manufacturing. There are a number of Standards that are proprietary and that can be controlled, but it's true that the world of open source is changing dramatically, and a lot of the standards are done by an incredible amount of spontaneous cooperation, first of all by the UN agencies that people think are useless, but they actually set to the basic predictability for then congregations of private sector entities to spend. Uh, time, money, and human resources in coming together and doing this common standards, and I think this sort of uh uh decentralized way of producing that seems to be very inherent in the digital economy, uh. Makes it very difficult to reverse that because some researchers in Taiwan studied that two companies, one that adheres to the standards and tries to use this open source. Type of public good would be able to market a product with 9 months in advance to a company that does the same, but by doing it only through proprietary standards. So I think that definitely that's an area we should look at. And the second is, again, that even with the green uh subsidies and policies, I think it's, uh, I totally agree with you that uh Uh, having the political economy approach and understanding, uh, you know, the determinants of these policies is important. But the other dimension, and that's what we are doing with Paulo Bastos and Catherine Stapleton on, uh, how technology diffuses because of firm to firm networks irrelevant to what the policies do. Uh, and there again, uh, uh, I think that the, the, the, the, the, the footnote is, uh. Uh, perhaps we should start considering a world where these large corporations are entities owned part of nations. And so when we think about regulations, we should really change the way we think of political economy, move away from a place where nations are the, the, the monopolists of regulation, and start thinking of these global policies as, you know, additional actors that interact in a strategic way with nations and see what that gives. Thanks. Thanks, Dary. Um, we don't have very many questions online, so let me look first in the room if anybody has any questions. Um, maybe just raise your hands so I get a sense of how many people are interested. OK, so let's go here, Govinda, and then at the back, and then here, we'll take 3. First of all, thank you very much, uh, Daria and Aditya. Very interesting and very helpful presentation, at least for me because I don't do that much work on trade. So I have, uh, one observation and perhaps the question is that about the wind shifting and, you know, discouraging of of the trade of the trade protectionism. So my thought is that uh the green policy so far basically they're providing the subsidy to on the demand side that mean deployment of the technologies rather than production of the technologies that is happening in many of our client countries. So what does it mean that's that means there's an increasing demand but these countries don't have a capacity to manufacture these technologies that means they have to import. So it means it might have increased the trade of these clean technologies. The second point is that in many countries they have uh uh some sort of the import duty reduction to promote the import of these technologies so that might have also increased the trade of these clean technologies. So my question is that do you have any concrete evidence so far whether these green policies or clean policies decrease the kind of the trade of technologies. In future it might impact because the EU has launched the CBAM, this carbon border adjustment mechanism, so that will be started in October this year. They will monitor the carbon intensity of the import they have the imported goods, then they will, uh, impose the tax, the border tax, starting 2026 based on the emission. Price they face I mean it will definitely impact adversely, uh, the import of of the of the trade of the the these goods, many carbon intensive goods, but until now, so I'm very curious to understand whether there's any empirical evidence of discouragement of the trade of clean technologies because of the environmental policies. Thank you. Great, thank you, Martin Pionkowski, lead economist at FCI. Uh, congratulations to Daria for, uh, an amazing presentation with, I think, in a, in both form and content could be a blueprint for how to present analytical work. Uh, it's truly impressive, um, and I also like the much more nuanced and much more optimistic take on, on the what's going on in the globe with the global value chains. I think it stands in, in some contrast to the doom and gloom that we have heard during the spring meeting, so I, I appreciate that. But I wanted to provoke you with 3 points that could be made by people that are much less worried about fragmentation and And the restructuring global value chains, one on resilience, on climate change, and on premature deindustrialization. On resilience, people, a lot of people would be saying that in fact we are what what is happening now with the global value chains, we are moving away from what has been excessive and not enough in its sort of excessive globalization or not sufficient fragmentation because after all as much as we can calculate aspirational costs of fragmentation in the future we have already as the world economy incurred. Real costs of not enough fragmentation because of the of the disruption in supply chains that happened during the COVID and the world's economy arguably lost trillions of dollars because of the shocks where apparently efficiency has been much more important than resilience. So the question is, aren't we actually going back to to uh closer to an optimum rather than away from it. Second, on climate change, I really liked your your point that a lot. Of these restrictions and increase in protectionism can be explained by um by efforts to actually subsidize climate change which is obviously which we all care about so I'm wondering if you could elaborate how much of this increase in protectionism could be explained by the sort of green climate change related policies and finally we at the bank have been arguing and started you know Danny Rodrick started it but we we picked up this narrative that. Uh, all developing countries are deindustrializing and, uh, China just doesn't, it's just too big. You cannot compete with China. Now we have a situation where in fact, due to fragmentation and decoupling, uh, a lot of these countries are getting a second chance. I worked on Vietnam and Aditya mentioned it. In Vietnam is an obvious case of a country that is benefiting. Eastern Europe is benefiting. A lot of other countries around the world can benefit. So perhaps the premature deindustrialization could actually change because of the opportunities that are given by this. So let me sum up by sort of asking you and taking these three arguments in turn and get your views on it. Thank you. Uh, thanks a lot. My name is Sergio Martinez, and I'm here visiting from Geneva, Switzerland. I have a background working with the WTO UNCTA at ITC. So it's a pleasure to be back in Washington DC after a long time. So my question, I want to follow up with Daria mentioned in the beginning. So I, I found very interesting that the, the research that you guys have done have found that, uh, the trade response to the global shocks has been one of resilience, but at the same time there is a sort of protectionism. Which means that for developing countries trade could be appealing as a source for developing their policies to respond to the the world of poly crisis and also to develop resilience. I was wondering at the World Bank, what is the approach that you guys are taking for providing assistance to to countries in developing the right policy toolkits or the policy needs. On that in which perhaps trade policy may not be the the first or second best choice, but maybe that could be complementary to other policies and some colleagues mentioned environmental policies, but I guess another important other dimensions that are important to the table is, uh, science, technology, and innovations policies which could also be complementary to those that affect trade to some capacity. So thanks. Thanks. And just like you, there is a question on the chat from Joan who, who asks, is trade likely to recover in the post pandemic era? So I guess there's still some questioning about how optimistic or pessimistic one should be about the impact of all these jobs, so. Back to you. OK. On, um, so the, the first question was on the evidence, uh, of whether green policies, uh, uh, decrease the trade in green technology. I mean, it's, it's early, right? I mean, uh, both in our research and in the data in the sense that A lot of the policies are being formulated, and the policies that have been for sufficient time in place are just too small to change things. However, in, um, the parallel research that we're doing with Paulo here in the room and Catherine Stapleton and, uh, uh, and Jacob Grispan, uh, uh, what we find is that, so what we ask there is, uh, how the Russia-Ukraine war. Change to what the companies do in terms of adoption of green tech and uh recruitment of experts around that. And so what we find is that, uh, um, the, the generation of techno or at least the the the companies that do seem to be very active, both in their company earning calls and in the job market around these areas are concentrated in very few countries. So there is a huge, uh, I mean, it's part also the bias of the data we have, but we clearly see the concentration in very few countries. And that's really the question that, I mean, going forward, something that we will have to track is, uh, are these, uh, firm to firm linkages strong enough to allow for the diffusion just because it's in the interest, just because the economics, the economic gains of that is too big. Uh, to stop that, or will, uh, you know, policies that might try to, uh, you know, to, to get in that kind of consideration be, uh, strong enough and go in the direction of discouraging that. I think it's an open question, but certainly something, uh, that we will be interested in pursuing. Um. On mar marching questions, I think really the, I mean, your three questions in the end, to me, are nuances of the same question, and I think the question is, uh, Uh, going alone or doing it cooperatively, really. And I think it's really more about, and I think both what Adi and I are is clearly we are on the camp of thinking that from an economic point of view it makes sense to do things in a cooperative way that a lot of the modern economy works in a cooperative way, a way simply because it's too complex for individual countries to be able to. You know, to, to con to build enough, uh, uh, uh, to, to compete, and I think the kind of Danny Roderick camp is the other one. He, he, he doesn't think that this, or he thinks that the cooperative way of operating in the space is too costly. Uh, so, uh, that's why, uh, specifically to your questions, uh. Uh, the resilience, uh, sure there have been costs, but as I said, it's important to look what these costs are relative to the correct counterfactual, which is not a world absent of shocks. It's a world where the same COVID has had very um. Important shocks that have been concentrated and where trade actually has smoothened out those shocks and there is Ana Fernandez that has a favor out on precisely the impact on firms of COVID where shows precisely that the firms that were more Engaged in global value chains had a bigger hit from the first phase of COVID, uh, uh, where, uh, if they were more exposed to China, but then those are the ones that bounce back more quickly. So there is a dynamic effect as well to take into account. Uh, so that's, um, I think that's an excellent contribution by Ana on that. Um, I, I, I, so, on, on the green policies. I hope the message is not that a lot of what we see in new protectionism is due to the green. So what we were asking is, uh, do green policies also have reflect broader trends that we see, um, And the broader trends is that in a number of areas, be it because you want to increase jobs at home, be it because you want to worry about just strategic security, be it because you want to worry about the climate crisis or other crises, there seem to be a lot of subsidies and so all the good old Industrial policy and it seems that one component of how we are trying to operate around the green shift is through subsidies and so it's more of a question of really the political economy of going through subsidies, what it means, and so on. Um, yeah, so that's more or less. My answer. Um, on the approach of the World Bank, uh, on how to operate in this new environment, I mean, so, uh, it's not anymore my job. It used to be. So I defer to the colleagues in EII, but I think there is a big reflection on what to do. To me, It's obvious what, uh, Aditya said that for us, an important way to, to operate there is to sort of really this idea that perhaps it's in the best interest of our client countries to become the hub of, uh, you know, of, of this new system when the hubs become reluctant to continue to play the hub. And the second is that for a lot of our client countries, uh, they're small and they have minimum scale achievements to reach. So just, it's not gonna change the nuts and bolts of what they need to do in terms of trade liberalization because they are at such a low level that really I think the China, US, uh, Um, decoupling is not going to change, uh, you know, the gains for from achieving some minimum scale of production and from facilitating the, you know, the imports, uh, or, or, or the exports, uh, through measures of trade facilitation or, in fact, I mean, um, I, I find it always fascinating and interesting, uh, that the estimated impact of trade facilitation, uh, improvements is so high. It's like, um, Uh, you know, you do either you do it with quantitative spatial models or you do it with general equilibrium models. It's fairly high on welfare. And I think it, the message is really that there is so much that can be done by still, uh, by liberalizing, uh, and, uh, eliminating, uh, hurdles at that low level that there is a lot of untapped scale economies at the low end to be also captured. And that agenda, I don't think should change at all. Thanks. Thanks, uh, we've reached time. Let me give Adi one sentence, just one response. Go. The Inflation Reduction Act in the United States is granting huge subsidies for production, for innovation conditional on the use of production in the United States using local contents, local employment. OK, so with that, let me um thank everybody for your participation. Um, Daria, Adie, um, congrats, um, and, uh, let's, uh, end it there. Thank you. Yeah. So yeah, that's that's nice. So this concept 2:30 2:30. I didn't see.

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