Ricardo Correa , Julian di Giovanni, Linda S. Goldberg, and Camelia Minoiu
When trade uncertainty directly affects credit supply it can amplify other contractionary impulses from a deterioration in the international trade environment. Exploiting heterogeneity in banks’ ex-ante exposure to trade uncertainty and loan-level data for U.S. banks, we show that an increase in trade uncertainty is associated with credit contractions that impact broad classes of borrowers and go beyond directly-affected firms. Exposed banks are more likely to curtail lending to firms that are internationally oriented, rely on trade finance, and participate in global value chains. The effects are stronger for banks with business models that support global trade and for constrained banks. Moreover, firms that borrow from exposed banks have worse real outcomes. Our results suggest that trade uncertainty can contribute to a fragmentation between banks and international trade, with negative effects for the real economy.