Covid-19 has caused a significant shock to global value chains (GVCs) due to the lockdown of the Chinese economy in early 2020. A quantitative trade model with input-output linkages was used to analyze the effects of this shock on the global economy. The study found that while most countries outside of China experienced moderate welfare losses, a few countries gained from trade diversion. The role of GVCs in transmitting the shock was also quantified, showing that in a world without GVCs, the welfare loss due to the Covid-19 shock in China would be reduced by 40% in the median country. The study highlights the importance of GVCs in shock transmission and the potential for trade diversification to mitigate the effects of supply chain disruptions. The JEL classification for this study is F11, F12, F14, F17, and F62.
