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Tariff Rate Uncertainty and the Structure of Supply Chains

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  • Sebastian Heise
  • Justin R. Pierce
  • Georg Schaur
  • Peter K. Schott

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 Japanese versus spot-market (i.e., American) relationships in customs data, show that their use varies intuitively across trading partners and products, and find that Japanese importing from China 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.

Suggested Citation

  • Sebastian Heise & Justin R. Pierce & Georg Schaur & Peter K. Schott, 2024. "Tariff Rate Uncertainty and the Structure of Supply Chains," NBER Working Papers 32138, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32138
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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