When Tariffs Disturb Global Supply Chains / Gene M. Grossman, Elhanan Helpman.

Format:

Book

Author/Creator:

Grossman, Gene M.

Contributor:

National Bureau of Economic Research.

Helpman, Elhanan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27722.

NBER working paper series no. w27722

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We study unanticipated tariffs on imports of intermediate goods in a setting with firm-to-firm supply relationships. Firms that produce differentiated products conduct costly searches for potential input suppliers and negotiate bilateral prices with those that pass a reservation level of match productivity. Global supply chains are formed in anticipation of free trade. Once they are in place, the home government surprises with an input tariff. This can lead to renegotiation with initial suppliers or new search for replacements. We identify circumstances in which renegotiation generates improvement or deterioration in the terms of trade. The welfare implications of a tariff are ambiguous in this second-best setting, but plausible parameter values suggest a welfare loss that rises rapidly at high tariff rates.

Notes:

Print version record

August 2020.