The structure of international trade has become increasingly complex in recent decades. Advances in productivity, transportation, and information and communications technology (ICT) have significantly changed the nature of cross-border activities between countries, and global supply chains have become a substantial component of the world economy. Despite the importance of global supply chains, most existing studies take them as fixed and generally overlooked their endogenous responses to trade policies and economic shocks. This dissertation examines the role of global supply chains in shaping trade and welfare consequences of modern trade agreements, such as preferential trade agreements (PTAs).

The first chapter of this dissertation studies the trade effect of supply chain reallocations, with a focus on producers' endogenous input sourcing decisions. I first introduce a global sourcing framework where producers optimally choose their input sourcing locations based on tradeoffs between variable input prices and fixed sourcing costs. As one of the major characterizations of the global supply chain structure, the distribution of producers' sourcing locations will endogenously respond to economic and trade conditions, amplifying the corresponding impact on input trade flows. Based on the model-implied relationship between individual import values and the number of imported intermediate products for any given sourcing location, I find supporting evidence of this transmission channel using US product-level import data. The estimation results indicate that an increase in expected import values or a reduction in fixed sourcing costs equivalent to a 10% annual average import value would induce around a 1% increase in the number of US producers sourcing from a given location.

To capture the cross-country and cross-sector transmission and spillovers generated by global supply chains, the second chapter extends the global sourcing framework introduced in Chapter 1 to a general equilibrium (GE) structure and further studies the welfare consequences of several trade policy events. In addition to their input sourcing decisions, producers also make market entry decisions, which determine the size of domestic supply chains. These two decisions jointly characterize the supply chain structure in the model. I then calibrate the model to the World Input-Output Database (WIOD) and use it to quantify the trade and welfare consequences of two hypothetical trade policy changes, namely a US-China tariff war and the elimination of all preferential trade agreements. The quantitative analysis reveals two novel angles through which global supply chains transmit shocks. First, allowing endogenous supply chain reallocations amplifies the trade and welfare consequences of shocks to variable trade costs. Second, changes in fixed sourcing costs are essential in welfare evaluation and could generate a larger impact than similar changes in variable trade costs. These results suggest an important role of supply chain reallocations and fixed sourcing costs in shaping the macroeconomic impact of trade shocks.

In the third chapter, I examine dynamic features of global supply chains by investigating the interaction between global supply chains and preferential trade agreements during the Great Trade Collapse (GTC) and the subsequent recovery. Using time-series data from WIOD, I first empirically test the relationship between bilateral trade flows and PTA status using a gravity specification. The estimated results indicate that a bilateral PTA relation can generate additional effects for supply chain-related (intermediate) trade during post-GTC recovery. I then introduce a novel method to decompose the impact of PTAs into a direct border price channel and an indirect behind-border channel. With the data structure of WIOT and some additional assumptions, I find that: (i) the structure of global supply chains changed significantly after the GTC, and behaved differently across countries; (ii) the border price channel was dominant before the GTC, the behind-border channel contributed considerably to the recovery of GVC-related trade and accounted for 26% of the aggregate impact. These results suggest an important role of PTAs in securing GVC growth after the GTC.