Can trade policy uncertainty facilitate industrial chain localization?

This study examines the influence of trade policy uncertainty on firms' supply chain localization strategies, demonstrating that increased uncertainty compels firms to pursue localization as a strategic measure to reduce risks and improve operational stability. The study indicates that policy instability drives companies to adopt local sourcing and production to achieve enhanced control, flexibility, and resilience. Two key mechanisms are identified: risk perception, wherein uncertainty heightens sensitivity to possible disruptions, leading to an emphasis on local robustness, and competitiveness enhancement, where localization encourages investments in domestic capabilities and agile responses to policy shifts. Heterogeneous analysis indicates that non-internationalized firms demonstrate a more significant localization reaction due to their absence of global networks and risk-mitigation strategies, resulting in greater dependence on domestic supply chains. The findings enhance the literature by connecting macroeconomic policy dynamics with micro-level company strategy, providing insights for firms operating in unpredictable trade settings and policymakers seeking to reconcile stable trade policies with domestic industrial development.