Bank Financing of Global Supply Chains

Finding new international suppliers is costly, so most importers source inputs from a single country. We match shipment data with the U.S. credit register to analyze the role of banks in mitigating trade search costs during the 2018-2019 U.S.–China trade tensions. Importers of tariff-hit products from China were more likely to exit relationships with Chinese suppliers and to find new suppliers in other Asian countries. To finance their geographic diversification, tariff-hit firms increased credit demand, drawing on credit lines and taking out loans at higher rates. Banks offering trade finance services in Asia eased both financial and information frictions.