Escaping the trade war: Finance and relational supply chains in the adjustment to trade policy shocks

Felipe Benguria and Felipe Saffie

Journal of International Economics, 2024, vol. 152, issue C

Abstract: The impact of the 2018–2019 trade war on total US exports depends on the direct effect of foreign retaliatory tariffs as well as on the ability of US exporters to reorganize global supply chains and redirect exports to other markets, away from retaliating countries. We document that the sharp decline in US exports to retaliating countries was compensated by a gradual increase in exports to other markets. We then develop a model of export reallocation to study the role of financial constraints and the persistence or stickiness of trade relationships as underlying mechanisms shaping both the direct impact of retaliatory tariffs and the extent of the reallocation toward alternative markets. In line with the predictions of the model, we find that in industries with high leverage, Chinese retaliatory tariffs led to a stronger decline in US exports to China but a larger increase in exports to the rest of the world. We find a similar pattern among industries with less persistent trade relationships. Finally, we document that other potential mechanisms do not appear to be economically and/or statistically significant in shaping the response to tariffs.

Keywords: Trade war; Exports; Tariffs (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022199624001144
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:152:y:2024:i:c:s0022199624001144

DOI: 10.1016/j.jinteco.2024.103987

Access Statistics for this article

Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and Rodríguez-Clare, Andrés

More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().