SMU SOE Seminar Series (February 25, 2026): Global Production Networks with Global Uncertainty

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ABSTRACT

We investigate how global uncertainty affects sourcing decisions and aggregate trade. We develop a quantitative trade model with anticipatory sourcing building on the Eaton-Kortum/Caliendo-Parro framework. The model incorporates uncertainty in productivity and tariffs, enabling anticipatory effects and interactions between shocks. We show that bilateral sourcing is summarized by pairwise sufficient statistics that capture the influence of fundamental factors and global uncertainty. These sufficient statistics form a fixed-point problem whose solution yields closed-form sourcing expressions. We characterize the solution analytically and implement the model quantitatively. We find that the mere possibility of future tariff hikes reduces trade through anticipatory sourcing shifts, and that these anticipatory shifts account for most of the trade effect of an uncertain Trump trade war. Shocks from different sources interact: an uncertain trade war amplifies losses from productivity uncertainty by hindering hedging through trade.