When Tariffs Disrupt Global Supply Chains
American Economic Review
vol. 114,
no. 4, April 2024
(pp. 988-1029)
Abstract
We study unanticipated tariffs in a setting with firm-to-firm supply relationships. Firms conduct costly searches and negotiate with potential suppliers that pass a reservation level of match productivity. Global supply chains form in anticipation of free trade. Then, the home government surprises with an input tariff. This can lead to renegotiation with initial suppliers or search for replacements. Calibrating the model's parameters to match initial import shares and the estimated responses to the US tariffs imposed on China, we find an overall welfare loss of 0.12 percent of GDP, with substantial contributions from changes in input sourcing and search costs.Citation
Grossman, Gene M., Elhanan Helpman, and Stephen J. Redding. 2024. "When Tariffs Disrupt Global Supply Chains." American Economic Review, 114 (4): 988-1029. DOI: 10.1257/aer.20211519Additional Materials
JEL Classification
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- F13 Trade Policy; International Trade Organizations
- F14 Empirical Studies of Trade
- L14 Transactional Relationships; Contracts and Reputation; Networks
- O19 International Linkages to Development; Role of International Organizations
- P33 Socialist Institutions and Their Transitions: International Trade, Finance, Investment, Relations, and Aid