Supply Shocks in Supply Chains: Evidence from the Early Lockdown in China

Abstract

How do firms in global value chains react to input shortages? We examine micro-level adjustments to supply chain shocks, building on the Covid-19 pandemic as a case study. French firms sourcing inputs from China just before the early lockdown in the country experienced a relative drop in imports that increases from February to April 2020. This shock on input purchases transmits to the rest of the supply chain through exposed firm’s domestic and export sales. Between February and June, firms exposed to the Chinese early lockdown experienced a 5.5% drop in domestic sales and a 5% drop in exports, in relative terms with respect to comparable non-exposed firms. The drop in foreign sales is entirely attributable to a lower volume of exports driven by a temporary withdrawal from occasional markets. We then dig into the heterogeneity of the transmission across treated firms. Whereas the ex-ante geographic diversification of inputs does not seem to mitigate the impact of the shock, firms with relatively high inventories have been able to absorb the supply shock better.

How Resilient was Trade to COVID-19?

“…Closer to our work, Liu et al (2021) show better performance in the early phases of the pandemic of Chinese exports of medical products, products with a high share of work from home, high contract intensity, and capital goods while Lafrogne-Joussier et al (2021) look into one production vulnerability, the reliance on inputs from China, showing that French firms with higher such reliance suffered more input shortages that translated into a decline in their exports through input-output linkages. These two papers differ from ours in that they focus on single countries' exports (China and France) and single or few specific dimensions of how production was affected by COVID-19 while our analysis covers exports by all countries to the 29 largest markets and an encompassing set of product vulnerability dimensions.…”

From Macro to Micro: Large Exporters Coping with Common Shocks

“…Heise (2020) shows that US imports from China declined by 50% at the onset of the Pandemic compared to the same months in 2019. Lafrogne-Roussier et al (2021) estimate that French firms that sourced intermediate goods from China before lockdown was imposed in that country, experienced a larger drop in imports and exports than those firms not sourcing from China. Relative to that literature, our focus is on the disproportionate collapse of the top exporters, not on GVCs per se, and we show that higher GVC exposure does not explain the larger collapse of top exporters.…”

International Trade Spillovers from Domestic COVID-19 Lockdowns

“…Related literature. Our paper contributes to a burgeoning literature on the propagation of the COVID-19 pandemic shock through global trade (e.g., Bonadio et al, 2021;Espitia et al, 2022;Lafrogne-Joussier et al, 2022;Liu et al, 2022).…”

“…From the supply side, the sudden halt in production following strict lockdowns and outright closings of establishments would also imply a contraction in the exports of a COVID-19 hit country to its trading partners-or equivalently-the bilateral imports of trading partners (Baldwin and Freeman, 2022;Cerdeiro and Komaromi, 2020;Espitia et al, 2022;Lafrogne-Joussier et al, 2022).…”