Fragmentation and the Future of GVCs

In the current confrontational geopolitical climate, countries have intensified the use of selective trade restrictions to exert economic coercion. This paper introduces targeted trade restrictions between a US‐centric bloc and a China‐centric bloc into a general equilibrium trade model that features nonlinear adjustments and input–output connections. We study how micro‐level restrictions—based on data identifying high‐weaponization‐potential products—affect welfare and the macroeconomic structure of global value chains (GVCs). Our findings reveal that while global economic integration is marginally affected, its topology changes: chains become more regional and rely more on non‐aligned countries acting as connectors between opposing blocs, in ways that may be hard to detect in standard trade data.