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Trade Policy Uncertainty and the Structure of Supply Chains

Author

Listed:
  • Peter Schott

    (Yale School of Management)

  • Justin Pierce

    (Board of Governors of the Federal Reserv)

  • Georg Schaur

    (University of Tennessee)

  • Sebastian Heise

    (Federal Reserve Bank of New York)

Abstract

We model the impact of changes in trade policy uncertainty on supply chains and show that a reduction in the probability of a trade war can foster the adoption of “Japanese”-style procurement practices, in which domestic buyers ensure the provision of high-quality inputs from foreign suppliers via long-term, just-in-time relationships. Empirically, we first show that the model provides a useful framework for analyzing shipments between U.S. importers and foreign exporters, and then demonstrate that a change in U.S. trade policy that eliminated the possibility of substantial increases in U.S. tariffs on Chinese goods coincides with a shift towards “Japanese” procurement. Our estimated general equilibrium model shows that the shift led to substantial U.S. welfare gains.

Suggested Citation

  • Peter Schott & Justin Pierce & Georg Schaur & Sebastian Heise, 2017. "Trade Policy Uncertainty and the Structure of Supply Chains," 2017 Meeting Papers 788, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:788
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    File URL: https://economicdynamics.org/meetpapers/2017/paper_788.pdf
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    References listed on IDEAS

    as
    1. Joaquin Blaum & Claire LeLarge & Michael Peters, 2015. "The Gains from Input Trade in Firm-Based Models of Importing," NBER Working Papers 21504, National Bureau of Economic Research, Inc.
    2. Nitya Pandalai Nayar & Aaron Flaaen & Christoph Boehm, 2016. "Multinationals, Offshoring and the Decline of U.S. Manufacturing," 2016 Meeting Papers 584, Society for Economic Dynamics.
    3. Richard Baldwin & Javier Lopez-Gonzalez, 2015. "Supply-chain Trade: A Portrait of Global Patterns and Several Testable Hypotheses," The World Economy, Wiley Blackwell, vol. 38(11), pages 1682-1721, November.
    4. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 729-761.
    5. repec:bla:reviec:v:26:y:2018:i:1:p:117-139 is not listed on IDEAS
    6. Cristea, Anca D., 2011. "Buyer-seller relationships in international trade: Evidence from U.S. States' exports and business-class travel," Journal of International Economics, Elsevier, vol. 84(2), pages 207-220, July.
    7. Fariha Kamal & Ryan Monarch, 2018. "Identifying foreign suppliers in U.S. import data," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 117-139, February.
    8. Tim Schmidt-Eisenlohr & Ryan Monarch, 2015. "Learning and the Value of Relationships in International Trade," 2015 Meeting Papers 668, Society for Economic Dynamics.
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