Not Coming Home: Trade and Economic Policy Uncertainty in American Supply Chain Networks

47 Pages Posted:

See all articles by Ben Charoenwong

Ben Charoenwong

National University of Singapore - Department of Finance

Miaozhe Han

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Jing Wu

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Date Written: February 7, 2020

Abstract

We study the effect of American trade policy uncertainty (U.S. TPU), American non-trade economic policy uncertainty (U.S. EPU), and foreign economic policy uncertainty (foreign EPU) on the supply chain network of American public firms. As a motivating example, we find firms with more domestic suppliers increase foreign supplier relationships even before the onset of the China-U.S. trade war in March 2018, beginning around the time of President Trump’s campaign announcement. In reduced-form analyses, we find higher U.S. TPU predicts trade creation – rather than bringing production “home”, American firms’ supplier and customer bases tilt abroad when U.S. TPU increases. The tilt is also associated with lower long-term strategic investments and asset growth. Meanwhile, foreign-country EPU shocks lead to trade diversion to other foreign countries. Firms for which production shocks would be more severe and those more central to the production network respond more to all measures of economic policy uncertainty.

Keywords: supply chain networks, economic policy uncertainty, supplier diversification, trade war

JEL Classification: F10, F13, G12, G14, O24

Suggested Citation

Charoenwong, Ben and Han, Miaozhe and Wu, Jing, Not Coming Home: Trade and Economic Policy Uncertainty in American Supply Chain Networks (February 7, 2020). Available at SSRN: https://ssrn.com/abstract=

Ben Charoenwong

National University of Singapore - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://bizfaculty.nus.edu/faculty-profiles/519-ben

Miaozhe Han

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

Jing Wu (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

HOME PAGE: http://www.jingwulab.org

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
33
Abstract Views
341
PlumX Metrics