Global value chain trade and sanction bypass: evidence from the United States

Global value chains and trade in intermediates have been proposed as one of the most important systemic changes in the global economic order. Besides their implication for the international trade, investment, and growth, we propose that they also have significant implications for the enforcement of sanctions. Intermediate trade allows economic actors to export and import products split into parts, later to be reassembled in another destination. Moreover, parts and components can also be classified differently in border crossings than final goods. In turn, these factors allow states to avoid enforcing sanctions that would negatively affect their own firms, while allowing firms to more safely export to sanction targets. We estimate United States' trade with partners using disaggregated trade data and show that indeed, US exports disproportionately more in intermediates to sanctioned countries than to trade partners without sanctions. We conclude the report by proposing several propositions that pave the way for future research.