Trade Policy and Reallocation: Multinational vs. Single-Country Linkages in the Tire Industry

The welfare effects of trade policy are shaped by the outcomes of imports reallocation and price changes. In this paper, I show that these outcomes crucially depend on whether importing firms are matched with multinational suppliers or with single-country suppliers. I study an antidumping duty imposed by Colombia on the imports of Chinese truck tires. I observe the full network of Colombian importers and their foreign suppliers. More importantly, plant location data shows that a few suppliers engage in multinational production, while most suppliers produce in only one country. Due to the policy, approximately 75% of Chinese tire imports were replaced with those from other origins, predominantly involving multinational suppliers in a diverse array of interactions. I estimate a quantitative trade framework to match the reallocation and price changes in the data. The model isolates three distinct channels of reallocation, influenced by connections with multinational suppliers and other complex market dynamics. This nuanced approach reveals that traditional reduced-form strategies to quantify reallocation may overlook these channels, potentially skewing welfare effect predictions of tariff -and similar- shocks.