Tariff barriers and operational efficiency: the mitigative role of top management team supply chain management experience and potential domestic supply base

Policymakers have portrayed the tariff rate on imports as an enabler for domestic firms to exploit opportunities and improve performance. However, a large tariff increase (LTI) may hinder domestic firms’ access to affordable operational inputs from overseas, potentially reducing their operational efficiency (OE). This study treats 52 LTIs imposed by the United States (U.S.) between 1990 and 2020 as exogenous shocks and employs a quasi-natural experiment to assess their impact on 258 U.S. domestic firms. Specifically, we examine the impact of LTI through the lens of downside risk and upside opportunity, measuring it in terms of the downside loss and upside gain in OE. The results indicate that LTI has adverse effects in both respects: it increases the downside loss and decreases the upside gain of OE. LTI has a more pronounced negative impact on the upside gain than on the downside loss of OE, indicating that it more severely limits domestic firms’ ability to exploit opportunities. We also find that the availability of a potential domestic supply base and the top management team’s supply chain management experience mitigate the negative effects of LTI on both the downside loss and upside gain of OE. This study reveals the holistic effects of LTI on OE and identifies mitigating factors from an operations and supply chain management perspective.