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, creating an unexpected, precisely timed, and country-specific episode of trade policy uncertainty. The proposal threatened U.S. trade partners with additional tariffs ranging from 10% to 50%, depending on the outcome of bilateral negotiations. Using transaction-level U.S. import data, we find that firms rapidly shifted sourcing from countries facing high tariff risk to those facing low tariff risk. Firms didn't change their total import values but this reallocation came at the cost of higher import prices. Firms with stickier or contract-dependent trade relationships and greater reliance on trade finance drove this preemptive reallocation, which is consistent with them being hit hardest had tariffs been implemented 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
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