Authors: Elie Gerschel, Alejandra Martinez, Isabelle Mejean*
* Author of the initial work
Before spreading globally, the Covid-19 epidemic was concentrated in the Hubei province. To contain the spread of the virus, the Chinese government has imposed quarantine measures and travel restrictions, entailing the slowdown of economic activity. We study the propagation of this geographically concentrated productivity slowdown to the global economy, through global value chains. Reliance on Chinese inputs has dramatically increased since the early 2000s. As a consequence, most countries are exposed to the Chinese productivity slowdown, both directly through their imports of Chinese inputs and indirectly, through other inputs themselves produced with some Chinese value added. This note aims at quantifying the total exposure of France compared to other countries. First, we compute the share of Chinese value added in French production. Then, we use data at the country and sector levels to quantify the impact of travel restrictions on French GDP.
- Production processes are increasingly spread across borders. Production within “Global Value Chains” allows ﬁrms to save on costs but renders value chains vulnerable to local supply shocks.
- The recent outbreak of CV-19 is a dramatic example that we use to measure the impact of a local production drop on the global economy through trade links.
- In France, 3.2% of ﬁrms’ output pays Chinese inputs, on average. In some sectors like textile or electrical equipment, the proportion is above 10%.
- A 10% drop in Chinese productivity could reduce French GDP by 0.3% through trade links only. Such a shock would be enough to turn the December 2019 INSEE forecast of a 0.2% growth for the ﬁrst quarter of 2020 into a reduction of economic activity.
- The shock is transmitted to the French economy through few large ﬁrms which produce out of foreign inputs.
- Optimal policy responses to supply chain disruptions include providing liquidity to distressed ﬁrms in the short-run.
- More data on value chains at ﬁrm-level is needed to identify weaknesses in the French productive structure and better target subsidies in case of a future shock.
In the press
- Financial Times, 04/06/2020 – Pandemic exposes Europe’s reliance on imports
- Institut de l’Enterprise, 16/04/2020 – La crise du coronavirus dans un monde de production fragmentée
- La Tribune, 31/03/2020 – COVID-19 : le plan d’urgence du gouvernement pour soutenir le commerce extérieur
- Agence Ecofin, 31/03/2020 – Les chaînes de valeur mondiales, une arme à double tranchant pour l’Afrique
- European Financial Review, 30/03/2020 – How Global Value Chains Became Victims of Covid-19
- La Croix, 23/03/20 – Covid-19 : comment le virus a contaminé l’économie française
- Senat.fr, 20/03/2020 – PLF rectificative, une trajectoire des finances publiques bouleversée par la crise sanitaire
- La Tribune, 18/03/2020 – L’onde de choc chinoise fait trembler la croissance française
- L’Humanité, 18/03/2020 – Croissance. Une poignée d’entreprises a contaminé l’économie