Trade and Foreign Economic Policy Uncertainty in Supply Chain Networks: Who Comes Home?

Ben Charoenwong, Miaozhe Han () and Jing Wu ()
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Miaozhe Han: CUHK Business School, Chinese University of Hong Kong, Hong Kong
Jing Wu: CUHK Business School, Chinese University of Hong Kong, Hong Kong

Manufacturing & Service Operations Management, 2023, vol. 25, issue 1, 126-147

Abstract: Problem definition : The uncertainty around trade and foreign economic policy contributes to supply chain risk. Academic/practical relevance : Whether such policy uncertainty will bring some production back to the United States or only redistribute the global supply chains among foreign sources is theoretically ambiguous and warrants an empirical analysis. In this paper, we study the relationship between trade and foreign economic policy uncertainty and the supply chain networks of American firms. Methodology : We use firm-level global supply chain data, transaction-level shipping container data, and policy uncertainty indexes constructed from leading media outlets to study how policy uncertainty correlates with changes in supply chain networks. Results : When U.S. trade policy uncertainty rises, firms with majority domestic sales decrease their supplier base abroad, whereas firms with majority foreign sales increase the number of foreign suppliers. Firms also substitute among foreign countries in response to their respective economic policy uncertainty—shifting suppliers from countries with higher uncertainty to ones with lower uncertainty. Firms requiring more specific inputs, producing more differentiated products, having higher market shares, and more central to the production network are more sensitive to policy uncertainty. Managerial implications : Supply chain restructuring following higher policy uncertainty puts the market value at risk. Managers should consider customers’ locations when making global supply chain restructuring decisions.

Keywords: policy uncertainty; supply chain restructuring; re-shoring; supplier diversification (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:25:y:2023:i:1:p:126-147

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