Mind the Break-Up:When Policy Disrupts Firms’ Supply Chains

This paper examines how supply-chain disruptions triggered by the UK-EU Trade and Cooperation Agreement (TCA) in 2021 affected UK firms and workers. Using matched UK microdata linking firm-level goods and services trade to firm’s outcomes and employer-linked worker records, we document a sharp decline in firms’ imports of intermediate goods from the EU after 2021. This contraction is moderated for firms that also trade services, suggesting that joint sourcing of goods and services shapes resilience to trade frictions. In contrast, we find no statistically meaningful response of intermediate services imports to either the Brexit referendum or the TCA. We then show that firms more exposed to EU input sourcing experience declines in employment, sales, and the wage bill, with corresponding effects on workers’ hours and pay. These impacts are heterogeneous across occupations, with larger losses concentrated among lower-skilled roles.