Mind the break-up: when policy disrupts firms' supply chains

This paper examines how policy-induced supply-chain shocks affect firms' performances, using the UK-EU Trade and Cooperation Agreement (TCA) as a source of exogenous variation. Using UK microdata on firm-level goods and services trade linked to firm's outcomes and employer-employee records, we document a sharp decline in firms' imports of intermediate goods from the EU after 2021. We then show that firms more exposed to EU input sourcing experience declines in employment and sales, with corresponding effects on workers' hours and pay. These impacts are heterogeneous across occupations, with larger losses concentrated among lower-skilled roles. Interestingly, we find that firms' services activities play an important role in mediating the impact of GVCs disruptions. On the one hand, these firms experience smaller declines in intermediate inputs imports; on the other hand, they experience stronger negative reactions to the overall GVC shock.