Tariff Rate Uncertainty and the Structure of Supply Chains

Sebastian Heise, Justin Pierce, Georg Schaur and Peter K. Schott

No 1389, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We show that reducing the probability of a trade war promotes long-term importer-exporter relationships that ensure provision of high-quality inputs via incentive premia. Empirically, we introduce a method for distinguishing between these long-term relationships--which the literature has termed "Japanese" due to their introduction by Japanese firms--from spot-market relationships in customs data. We show that the use of "Japanese" relationships varies intuitively across trading partners and products and find that the use of such relationships increases after a reduction in the possibility of a trade war. Extending the standard general equilibrium trade model to encompass potential trade wars and relational contracts, we estimate that eliminating "Japanese" procurement reduces welfare about a third as much as moving to autarky.

Keywords: Supply chain; Uncertainty; Trade war; Procurement (search for similar items in EconPapers)
JEL-codes: F13 F14 F15 F23 (search for similar items in EconPapers)
Date: 2024-04-03
New Economics Papers: this item is included in nep-int
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https://www.federalreserve.gov/econres/ifdp/files/ifdp1389.pdf (application/pdf)

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Working Paper: Tariff Rate Uncertainty and the Structure of Supply Chains (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1389

DOI: 10.17016/IFDP.2024.1389

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