Supply Chain Adjustments to Tariff Shocks: Evidence from Firm Trade Linkages in the 2018-2019 U.S. Trade War
August 2024
Working Paper Number:
CES-24-43
Abstract
We use the 2018-2019 U.S. trade war to examine how supply chains adjustments to a tariff cost shock affect imports and exports. Using confidential firm-trade linked data, we show that the decline in imports of tariffed goods was driven by discontinuations of U.S. buyer'foreign supplier relationships, reduced formation of new relationships, and exits by U.S. firms from import markets altogether. However, tariffed products where imports were concentrated in fewer suppliers had a smaller decline in import growth. We then construct measures of export exposure to import tariffs by linking tariffs paid by importing firms to their exported products. We find that the most exposed products had lower exports in 2018-2019, with most of the impact occurring in 2019.
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