63 China & World Economy / 63 – 82, Vol. 19, No. 1, 2011 ©2011 The Author China & World Economy ©2011 Institute of World Economics and Politics, Chinese Academy of Social Sciences A New Global Auto Industry? Henryk Kierzkowski* Abstract This paper brings together a number of robust trade models to shed some light on the likely evolution of the global automotive industry. Vertical product differentiation, intra-industry trade and fragmentation of production leading to international outsourcing are important features of the existing global automotive sector. The global automotive sector will most likely experience groundbreaking changes over the coming decades. The sector is confronted with a multidimensional technological revolution spurred by radical product innovation, shifts in customer demand and government incentives. A dominant driver will be growing public concern about climate change. China and India might well become leading players by 2050, if not earlier. Key words: automotive industry, trade flows, product differentiation, new technology, outsourcing, China JEL codes: F12, F13, F14 I. Introduction The subject of this paper is the evolution of the automotive industry, seen from a global perspective. The automobile industry is a truly global industry: its contribution to the gross world product is approximately the same as the entire GDP of the UK, the sixth largest economy in the world. Almost 70 million cars are produced in the world annually, providing employment, directly or indirectly, to over 100 million people in approximately 100 countries. Most industrialized countries, and an increasing number of emerging economies, export either cars or automotive components. (Practically all countries are car importers.) The sector also invests over US$100bn per year in R&D. When the bottom fell out of the national auto industries, policy-makers rushed to help, * Henryk Kierzkowski, Honorary Professor, Graduate Institute of International Studies, Geneva, Switzerland. Email: henryk.kierzkowski@gmail.com. I am indebted to Ronald Jones, Lurong Chen, Stefan Markowski, Nobuaki Yamashita and to a referee for their comments.