Protect me not: The effect of tariffs on U.S. supply networks

Abstract

In 2018, the United States imposed numerous tariffs with the stated intent of protecting U.S. firms from international competitors. These tariffs have had a substantial impact on supply chains which were not well understood. While tariffs can provide some protection to certain industries, they can also create inefficiencies for the industries they were designed to protect, as well as for their supply chain partners. We analyze the impacts of the tariffs imposed by the United States in 2018, on the industries they were intended to protect (steel, semiconductors, agricultural equipment, and chemicals industries) as well as on their suppliers and customers. We perform an event study to analyze the effects of four discrete suites of tariffs on the firm value of 691 publicly traded U.S. firms. We utilize resource dependence theory (RDT) to better understand the net impact of tariffs on protected industries and their supply chains. The results demonstrate that the implementation of the 2018 tariffs had an overall negative impact on firm value, leading to a decrease in the value of domestic producers within the protected industries and mixed financial effects on firms in their supplier and customer industries. These findings demonstrate the ripple effect of unintended consequences that tariffs can lead to throughout supply chains, motivating further theoretical development and informing trade policy.