Trade Policy Uncertainty and Supply Chain Disruptions: Firm-Level Evidence from "Liberation Day"

Gustavo de Souza, Haishi Li, Ziho Park and Yulin Wang

No 12285, CESifo Working Paper Series from CESifo

Abstract: On April 2, 2025, U.S. President Donald Trump announced the “Liberation Day” tariffs, triggering a sharp country-specific surge in trade policy uncertainty. The proposal threatened U.S. tradeb partners with additional tariffs ranging from 10% to 50%, with implementation conditional on bilateral negotiation outcomes. Using transaction-level U.S. import data, we find that during the April—July 2025 negotiation window, firms rapidly shifted sourcing from high- to low-tariff-risk countries with near one-for one replacement. As a result, firms’ total imports remained largely unchanged, but import prices increased. U.S. importers therefore primarily responded by reallocating import sources rather than by reshoring or stockpiling. This preemptive reallocation was disproportionately driven by firms with inventory-, contract-, and trade-finance-intensive supply chains, consistent with their high vulnerability had tariffs taken effect before they could adjust. Our findings demonstrate that even brief periods of trade policy uncertainty can significantly disrupt supply chains.

Keywords: global supply chains; trade war; trade adjustment (search for similar items in EconPapers)
JEL-codes: F14 F63 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-iaf and nep-inv
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