Bank Financing of Global Supply Chains

Abstract

Finding new international suppliers is costly, so most importers source inputs from a single country. We examine the role of banks in mitigating trade search costs during the 2018--2019 U.S.-China trade tensions. We match data on shipments to U.S. ports with the U.S. credit register to analyze trade and bank credit relationships at the bank-firm level. We show that 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 bank credit lines and taking out loans at higher rates. Banks offering specialized trade finance services to Asian markets eased both financial and information frictions. Tariff-hit firms with specialized banks borrowed at lower rates and were 15 pps more likely and 3 months faster to establish new supplier relationships than firms with other banks. We estimate the cost of searching for suppliers at $1.9 million (or 5% of annual sales revenue) for the average U.S. importer.  

Keywords: Financial frictions, Bank lending, Supply chains, Trade policy

JEL Classification: G21, F34, F42