But even before all these trade tensions started, value chains around the world had begun to change in even more significant ways, thanks in part to the advancement in technology. To this point, I’d like to highlight a few observations by McKinsey Global Institute report earlier this year. 5  First, services are becoming a larger part of the global value chain. Cross border services are growing more than 60 percent faster than trade in goods. The valueadded share of services is increasing as firms around the world today are spending more on brands and intellectual property. Manufacturing firms in many areas start providing leasing services, which add value to downstream processes and blur borders between products and services. In addition, as people’s standards of living increase, they shift their consumption towards services, which could range from tourism, medical services, financial services, and educational services. Unlike trade in goods, trade in services are not the focus of the ongoing trade tension, which makes service-related value chains less vulnerable. The second observation is that global value chains are becoming more knowledge-intensive and are relying more on high-skill labor. This is partly attributed to the first observation, as service-related tasks generally require higher skills than manufacturing tasks. The introduction of technologies such as automation and the rising wages in developing countries diminish the importance of labor-cost differences. Contrary to the common perception that the global value chains are driven by cheap labor in developing countries, today less than 20 percent of global trade is driven by labor-cost arbitrage.

Palmqvist, Stefan (2013), “Konsumentprisindex i Sverige och Kanada är inte så lika” (The CPI in Sweden and Canada are not so similar) (In Swedish) Post on the blog Ekonomistas, http://ekonomistas.se/2013/11/20/konsumentprisindex-i-sverige-och-kanada-ar-inte-sa-lika/. Reserve Bank of Australia (1998), The Implications of Recent Changes to the Consumer Price Index for Monetary Policy and the Inflation Target. Reserve Bank of Australia Bulletin, October. Reserve Bank of New Zealand (1999), Minor Technical Change to Inflation Target. Press release, 28 October. The Riksbank (2010), The Riksbank removes the tolerance interval from its specified monetary policy target Memorandum, Basis for Decision, 31 May 2010, http://www.riksbank.se/Upload/Dokument_riksbank/Kat_publicerat/Pressmeddelanden/2010/ nr27_beslutsunderlag.pdf. The Riksdag (2014), Committee on Finance appoints top names to evaluate the Riksbank's monetary policy. Press release, 17 June. Skingsley, Cecilia (2015), Inflation-targeting policy after the financial crisis. Speech at Almega, 22 May. Svenska Dagbladet (2015), “Professorn varnar för låga räntan,” (Professor warns about low interest rate) (In Swedish) 18 November. 10  BIS central bankers’ speeches  Figure 1. Stable Swedish economy  Note: The yield differential refers to 10-year government bonds, monthly data. Sources: Thomson Reuters and the Riksbank  Figure 2. Major direct impact of interest rate changes on CPI inflation  Note: Weighted mortgage rate is chained in December 2014 due to an altered measurement method. Sources: Statistics Sweden and the Riksbank  BIS central bankers’ speeches  11  Figure 3. CPI inflation varies a lot more than CPIF and HICP inflation  Note: The CPIF is the CPI with a fixed mortgage rate. HICP refers to the EU-harmonised index for consumer prices.