Trade Disruptions and Reshoring

Firms are increasingly concerned about the resilience of their sales and sourcing decisions as conflicts, natural disasters, and labor disputes frequently disrupt trade. Using administrative tax data, we show that a temporary disruption in trade due to state border closures in India led to a persistent trade collapse within the country -- inter-state trade relative to intra-state remains 4% lower even six months after all the restrictions were lifted. We show that reshoring explains this phenomenon as plants more dependent on inter-state sales (input-sourcing) shift from inter- to intra-state sales (input-sourcing). We find that state borders rather than distance are salient in explaining the observed reshoring. Finally, we propose a novel product-level measure, incorporating demand and supply characteristics, that determines the extent of reshoring.