President Trump’s announcement of the Liberation Day tariffs on April 2, 2025, arguably marked the most significant protectionist trade policy in modern history. Eighty-five countries that export significantly more to the United States each year than they import faced so-called reciprocal tariff rates ranging from 11 percent to 50 percent, while all other countries were assigned a uniform 10 percent rate. Both types of tariffs were implemented in addition to existing tariffs.

Although a baseline 10 percent tariff on nearly all countries took effect on April 5, the implementation of rates above 10 percent was postponed for 90 days, starting on April 9, and was later extended through the end of July. The notable exception was China, which faced escalating tariff rates up to 125 percent until May 12. The Trump administration announced that the final tariff rates would ultimately depend on negotiations with each country, creating significant uncertainty for countries with announced rates above 10 percent regarding further potential tariff increases.

US importers could have responded to the tariffs in three ways: by stockpiling products from their existing suppliers, purchasing more domestic products, or reallocating their import sourcing to countries with low tariff uncertainty. Our research examines these possibilities by studying how trade policy uncertainty (TPU) affected US firms’ global sourcing decisions from April to July 2025. We used the S&P Panjiva database, which provides transaction-level information on US firms’ imports, including products, origin countries, values, and quantities. We measured each firm’s level of TPU using the weighted average gap between the announced tariff rate and the 10 percent baseline for each country a firm imported from, with weights reflecting each country’s share of a firm’s total imports. China’s tariffs fluctuated widely, so we accounted for each firm’s import share from China separately.

Our findings reveal that US firms significantly shifted their import sourcing from high-TPU countries to low-TPU countries after Liberation Day. Within two months, firms redirected their imports to countries that faced only the baseline 10 percent tariff, which experienced minimal TPU because their announced tariffs had already been implemented. Firms reallocated from high-TPU to low-TPU countries with near one-for-one replacement, resulting in no significant change to total imports. Specifically, by July 2025, a 10 percentage point increase in potential tariffs caused a 17 percent increase in imports from low-TPU countries and a 17 percent decrease in imports from high-TPU countries.

These reallocations were concentrated among firms whose supply chains depended heavily on inventories, contracts, or trade finance. If tariffs had increased after the negotiation period, firms with high inventory intensity would have faced the challenge of restocking under higher tariffs, while firms with contract-intensive supply chains would have incurred higher tariffs for a longer duration before securing alternative suppliers. Moreover, firms heavily reliant on trade finance would have faced higher interest rates to finance their supply chain adjustments. Consequently, these firms preemptively adjusted their supply chains.

Although total imports remained unchanged, import prices increased. Our research does not examine the overall effect of the 10 percent baseline tariff on import prices. Rather, it focuses on how the threat of tariffs above 10 percent led to varied price changes for firms based on their level of TPU. Our findings reveal that a 10 percentage point increase in potential tariffs caused a 0.6 percent increase in import prices two months after Liberation Day. This effect was concentrated among firms that reallocated their sourcing origins, as switching to new sourcing origins incurs significant costs.

Overall, our research suggests that threats of tariffs have limited effectiveness in prompting US firms to shift sourcing origins from imports to domestic production. Rather than increasing domestic purchases, US firms responded to Liberation Day by moving their import sourcing to countries with less tariff uncertainty. Furthermore, even if negotiations eventually lowered tariffs, firms had already reallocated their supply chains and incurred higher costs during the period of uncertainty.

Note:
This research brief is based on Gustavo de Souza et al., “Trade Policy Uncertainty and Supply Chain Disruptions: Firm-Level Evidence from ‘Liberation Day’,” CESifo Working Paper no. 12285, December 2025.