The Effect of Tariffs on Global Supply Chain Integration

Abstract

This study investigates the impact of tariffs on global supply chain integration (GSCI) using a mixed-method approach that combines econometric analysis with qualitative policy and case-based insights. Employing panel data from OECD TiVA and UN Comtrade, the results show that tariffs on intermediate inputs exert stronger negative effects on backward participation than tariffs on final goods, reducing the extent of foreign value added embodied in exports. Propagation analysis using input–output linkages further demonstrates that tariff shocks transmit across upstream and downstream sectors, amplifying costs beyond directly taxed goods. In addition, qualitative evidence reveals that policy uncertainty delays investments and discourages the formation of new cross-border partnerships, thereby reshaping long-term supply chain strategies. However, rather than widespread reshoring, the results highlight a trend toward trade diversion and supply chain reconfiguration, with firms increasingly diversifying sourcing and adopting regionalization strategies. Graphical analyses of sectoral responses confirm heterogeneity, with highly specialized industries adjusting more slowly than those with broader sourcing options. Collectively, these findings suggest that globalization is not reversing but transforming: tariffs raise costs and uncertainty while inducing geographic and structural reorganization of supply chains. Policy implications emphasize that although tariffs may serve as short-term instruments of industrial or strategic policy, they impose significant efficiency losses, undermine trust, and accelerate fragmentation along geopolitical lines. The study concludes that the future of GSCI will be defined less by de-globalization and more by adaptive reorganization, where resilience is built through diversification and regional clustering rather than retreat into autarky.