trade value global section chapter services chains

Report – S&E; Indicators 2018The second section of this chapter examines patterns of trade associated withKTI industries in the United States and other economies. (For an explanationof KTI industries, please see section Chapter Overview.) In the modern worldeconomy, production has become more globalized (i.e., value is added to aproduct or service in more than one nation) and less often verticallyintegrated (i.e., conducted under the auspices of a single company and itssubsidiaries) than in the past. The fragmentation of production into specificactivities and across national boundaries has led to the rise of global valuechains and has increased trade in intermediate products (OECD, WTO, and WorldBank Group 2014). Trade in intermediate goods and services and capital goodsaccounts for 70% of global trade, an indicator of the globalization and extentof global value chains (OECD 2014:7). Between 1995 and 2009, the cross-borderflows of intermediate goods and services, as well as final products associatedwith manufacturing value chains, significantly increased (Donofrio andWhitefoot 2015:21). Global value chains have allowed developing countries toindustrialize faster and gain income and jobs from providing components,supplies, or specific services, rather than creating an entire industry (OECDand WTO 2013:89).The globalization of production and rise of global value chains have affectedall industries, but their impact has been pronounced in many commercial KTIindustries, particularly the ICT industries, and medium-high-technologyindustries, including motor vehicles and parts and electrical machinery andappliances. The broader context is the rapid expansion of these industrial andservice capabilities in many developing countries, both for export andinternal consumption, accompanied by an increasing supply of skilled,internationally mobile workers. (See Chapter 2 and Chapter 3 for discussionson internationally mobile students and workers.)This section focuses on cross-border trade of international knowledge-intensive services and high-technology and medium-high-technology products.Trade data are a useful though imperfect indicator of globalization (for adiscussion, see sidebar and sidebar ).This discussion of trade trends in knowledge-intensive services and high-technology manufactured products focuses on (1) the trading zones of the NorthAmerican Free Trade Agreement (NAFTA), with a particular focus on the UnitedStates, and the EU, (2) China, and (3) Japan and other Asian economies.The EU, East Asia, and NAFTA have substantial flows of intraregional trade.China’s economy has extensive trade between mainland China and Hong Kong. Thissection treats trade within these three regions and the economy of China indifferent ways. Intra-EU and NAFTA exports are not counted because they areintegrated trading zones with common external trade tariffs and fewrestrictions on intraregional trade. Trade between mainland China and HongKong is excluded because it is essentially intra-economy trade. (Data on tradein commercial knowledge-intensive services between China and Hong Kong are notavailable.) Intra-Asian trade is counted for other Asian countries becausethey have a far smaller degree of political and trade integration.