How trade policy uncertainty shapes inventory management: a global panel analysis of automotive firms

This study examines how trade policy uncertainty (TPU) affects inventory behaviour in the global automotive sector. While the effects of aggregate economic policy uncertainty (EPU) on firm inventories are well documented, the trade-specific dimension remains underexplored. Using quarterly data from 272 publicly listed automotive firms (2014-2024), we estimate first-difference panel models to assess the impact of TPU and EPU on changes in inventory-to-assets ratios. We find that increases in TPU are positively associated with inventory-to-assets adjustments at the global level, consistent with precautionary stockpiling under trade-related uncertainty. This effect is significant among US firms but not among Chinese firms. In contrast, EPU is negatively associated with inventory-to-assets changes across all samples, suggesting inventory contraction under broader policy uncertainty. These findings highlight the distinct operational implications of trade-related versus aggregate policy uncertainty in globally integrated industries.