The Structure of Supply Chains and the Impacts of Trump 1.0 Tariffs: Evidence from Japanese firms’ sales to North America

This study empirically investigates how the US–China trade war affected sales to North America (i.e., Canada and the US) by Japanese manufacturing firms and their overseas affiliates between 2014 and 2021. Our findings are summarized as follows. All major sales channels to North America—except for sales by affiliates in Mexico, who enjoyed a positive trade diversion effect—were not significantly affected by US tariffs against China, on average. This includes sales by affiliates in the US and China. However, these effects are heterogeneous, depending on whether affiliates served as the main production bases for the North American market in their respective firms. We found such heterogeneity in affiliates in the US, ASEAN, and Mexico, as well as in firms located in Japan. For example, affiliates in ASEAN experienced a positive trade diversion effect when they were the main production bases. Our results suggest that Japanese manufacturing firms did not respond significantly to tariff changes during the Trump 1.0 period, with only minor quantitative changes and heterogeneous effects on sales to North America.