Trade Policy Uncertainty and Supply Chain Disruptions: Firm-Level Evidence from "Liberation Day"

On April 2, 2025, U.S. President Donald Trump announced the “Liberation Day” tariffs, triggering a sharp country-specific surge in trade policy uncertainty. The proposal threatened U.S. tradeb partners with additional tariffs ranging from 10% to 50%, with implementation conditional on bilateral negotiation outcomes. Using transaction-level U.S. import data, we find that during the April—July 2025 negotiation window, firms rapidly shifted sourcing from high- to low-tariff-risk countries with near one-for one replacement. As a result, firms’ total imports remained largely unchanged, but import prices increased. U.S. importers therefore primarily responded by reallocating import sources rather than by reshoring or stockpiling. This preemptive reallocation was disproportionately driven by firms with inventory-, contract-, and trade-finance-intensive supply chains, consistent with their high vulnerability had tariffs taken effect before they could adjust. Our findings demonstrate that even brief periods of trade policy uncertainty can significantly disrupt supply chains.