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Trade Policy Uncertainty May Affect the Organization of Firms’ Supply Chains

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Abstract

Global trade policy uncertainty has increased significantly, largely because of a changing tariff regime between the United States and China. In this blog post, we argue that trade policy can have a significant effect on firms? organization of supply chains. When the probability of a trade war rises, firms become less likely to form long-term, just-in-time relationships with foreign suppliers, which may lead to higher costs and welfare losses for consumers. Our research shows that even in the absence of actual tariff changes, an increased likelihood of a trade war can significantly distort U.S. imports.

Suggested Citation

  • Sebastian Heise & Justin R. Pierce & Georg Schaur & Peter K. Schott, 2019. "Trade Policy Uncertainty May Affect the Organization of Firms’ Supply Chains," Liberty Street Economics 20191106, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87362
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    File URL: https://libertystreeteconomics.newyorkfed.org/2019/11/trade-policy-uncertainty-may-affect-the-organization-of-firms-supply-chains.html
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    More about this item

    Keywords

    Procurement; Trade War; Uncertainty; Supply Chain;
    All these keywords.

    JEL classification:

    • F00 - International Economics - - General - - - General

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