| Author: | Xu, Jingwen |
| Title: | Impact of tariff regulations on global sourcing strategies |
| Advisors: | Wang, Yulan (LMS) Xiao, Guang (LMS) |
| Degree: | Ph.D. |
| Year: | 2025 |
| Department: | Department of Logistics and Maritime Studies |
| Pages: | xi, 129 pages : color illustrations |
| Language: | English |
| Abstract: | The past decades have witnessed significant shifts in the global trade landscape, with evolving tariff regulations reshaping the structure of global supply chains. In particular, growing concerns over carbon emissions have led to the implementation or proposal of regulatory frameworks such as the European Union’s Carbon Border Adjustment Mechanism (CBAM) and the United States’ Clean Competition Act (CCA). These initiatives aim to mitigate carbon leakage and encourage greener production practices. Meanwhile, different types of trade contracts specified by International Commercial Terms (Incoterms), such as EXW (Ex Works), DAP (Delivered at Place), and DDP (Delivered Duty Paid), play a crucial role in determining the responsibility allocation for tariffs and freight charges between buyers and suppliers, thereby influencing firms’ global sourcing strategies. In this thesis, we investigate how different carbon border tax regulations and trade contracts impact global procurement decisions. In the first topic, we consider the challenge faced by policymakers and global supply chains arising from disparate carbon pricing standards across countries. Specifically, many countries, such as China, Canada, and the European Union, have adopted carbon pricing measures to encourage high-carbon companies to reduce carbon emissions. However, the disparity in carbon pricing standards across countries has led to the frequently observed issue of “carbon leakage,” whereby emissions are transferred from regions with high carbon prices to those with lower or no carbon pricing. To address this issue, there are two proposed carbon border tax regulations: (1) CBAM, introduced by the European Union, which imposes carbon tariffs on imported goods equal to the difference in carbon prices between the two countries; and (2) CCA, proposed by the United States Senate, which imposes a carbon tax on imported products with emission intensity exceeding a pre-specified benchmark. Motivated by the intrinsic difference between these two regulations, we examine the impact of such carbon border tax regulations on the buyer’s sourcing strategies and the suppliers’ carbon emissions. We find that CCA is more effective than CBAM in encouraging the buyer to source from the domestic supplier, generating more domestic employment opportunities. We also show that when the domestic supplier’s production cost is low, CCA generates a win-win situation (i.e., higher expected profit and higher social welfare) as compared to CBAM. By contrast, when the domestic supplier’s production cost is moderate and its investment cost coefficient is high, both the government and the buyer are indifferent between CBAM and CCA. Furthermore, CCA always performs better than CBAM in incentivizing emission abatement investment, but this may result in higher total carbon emissions. In the second topic, we investigate a decentralized global supply chain composed of a domestic buyer, two types of overseas suppliers, and a logistics service provider (LSP). One supplier offers high reliability but faces a substantial tariff, as is typical for suppliers located outside free trade areas. The other supplier is less reliable but enjoys a lower tariff rate, for instance, one based within a free trade area. Based on who shall bear the freight charge and import tariff, the buyer and the supplier can undertake one of the following three trade contracts specified by Incoterms: EXW, DAP, or DDP. Interestingly, we find that as the tariff rate increases, the buyer becomes more willing to assume responsibility for both freight and tariff costs, which contradicts common intuition. Moreover, across all three trade contracts, a higher supplier unreliability weakens the competition between suppliers. By contrast, a higher tariff rate can intensify supplier competition, particularly under DAP. Our findings suggest that both buyers and reliable suppliers outside free trade areas could tailor-make their trade contract decisions based on the prevailing tariff environment to safeguard profitability, while unreliable suppliers within free trade areas need to take into account both reliability and cost to stay competitive. Furthermore, our results highlight the role of tariff adjustments as an effective short-term mechanism to maintain sourcing within free trade areas. |
| Rights: | All rights reserved |
| Access: | open access |
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