Abstract I investigate the consequences of firms’ joint import and export decisions in the context of large devaluations. I provide empirical evidence that large devaluations are characterized by an increase in the aggregate share of imported inputs in total input spending and by reallocation of resources toward import-intensive firms, contrary to what standard quantitative trade models predict. These facts are explained by the expansion of exporters, which are intense importers. I develop a model where firms globally decide their import and export strategies and discipline it to match salient features of the Mexican micro data. After a devaluation, the model reproduces the pattern of low aggregate substitution and firm reallocation observed in the data. Compared with a benchmark without global firms, the model predicts higher growth of total exports and imports and a smaller reduction in the trade deficit.

Abstract We study the effect of risk on how firms organize their supply chains. We use transaction-level data on U.S. manufacturing imports to construct a novel measure of input sourcing risk based on the historical volatility of ocean shipping times. Our measure isolates the unexpected component of shipping times that is induced by weather conditions along more than 331,000 maritime routes. We first document that unexpected shipping delays significantly reduce importers’ sales, profits, and employment. We then show that firms actively diversify weather risk by using more routes and foreign suppliers, although their import values decline. To rationalize these findings, we introduce shipping time risk into a general equilibrium model of importing with firm heterogeneity. Our quantitative analysis predicts substantial costs for the U.S. economy associated with supply chain risk.