Unveiling the true value of across-strait trade: The global value chain approach

- Trade in value added and value added in trade are clarified.
- Taiwan's trade with China changes drastically when measured in value-added terms.
- Taiwan and China occupy different positions in the global value chain.

Due to the pervasive nature of value chains, an increasing amount of imported intermediate components and raw materials from other countries are entangled in Taiwan's exports to Mainland China. This circumstance leads to odd across-trait bilateral trade amounts and surpluses favorable towards Taiwan. The purposes of this paper are applying Johnson and Noguera (2012) to extricate value-added exports earned by Taiwan from China and Wang, Wei, and Zhu (2013) to decompose Taiwan's gross exports to China into various meaningful components. The two issues are related to trade in value added and value added in trade. Specifically, the former explores the value added embedded in the source country's exports to the absorbing country as final demand, regardless of whether those goods are directly or indirectly arriving at the absorbing country. The latter only looks where the value added is originated regardless of where it is ultimately absorbed. We show both concepts aim to measure a country's value added from its trades, but from different angles. Each has its own distinct meaning. They are related, but not completely the same.The inter-country input-output (ICIO) table used in this paper comes from the World Input-Output Database (WIOD) (Timmer et al., 2015 and Dietzenbacher et al., 2013). Empirical results indicate that Taiwan's export values to Mainland China shrink by 64.3% when bilateral trades are measured in value-added terms. Furthermore, Taiwan's trade surplus toward China also decreases by 65.2% under this measure. From the viewpoint of value added in trade, the share of value added in Taiwan's gross exports to China continued to decrease and reached 50.9% in 2011, while the components of foreign value added and double counted terms kept growing in recent years.