TY - JOUR
T1 - When Tariffs Disrupt Global Supply Chains
AU - Grossman, Gene M.
AU - Helpman, Elhanan
AU - Redding, Stephen J.
N1 - Publisher Copyright:
© 2024 American Economic Association. All rights reserved.
PY - 2024/4
Y1 - 2024/4
N2 - We study unanticipated tariffs in a setting with firm-to-firm supply relationships. Firms conduct costly searches and negotiate with potential suppliers that pass a reservation level of match productivity. Global supply chains form in anticipation of free trade. Then, the home government surprises with an input tariff. This can lead to renegotiation with initial suppliers or search for replacements. Calibrating the model’s parameters to match initial import shares and the estimated responses to the US tariffs imposed on China, we find an overall welfare loss of 0.12 percent of GDP, with substantial contributions from changes in input sourcing and search costs.
AB - We study unanticipated tariffs in a setting with firm-to-firm supply relationships. Firms conduct costly searches and negotiate with potential suppliers that pass a reservation level of match productivity. Global supply chains form in anticipation of free trade. Then, the home government surprises with an input tariff. This can lead to renegotiation with initial suppliers or search for replacements. Calibrating the model’s parameters to match initial import shares and the estimated responses to the US tariffs imposed on China, we find an overall welfare loss of 0.12 percent of GDP, with substantial contributions from changes in input sourcing and search costs.
UR - http://www.scopus.com/inward/record.url?scp=85189349580&partnerID=8YFLogxK
U2 - 10.1257/aer.20211519
DO - 10.1257/aer.20211519
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AN - SCOPUS:85189349580
SN - 0002-8282
VL - 114
SP - 988
EP - 1029
JO - American Economic Review
JF - American Economic Review
IS - 4
ER -