Working Paper: NBER ID: w25638
Authors: Pablo D. Fajgelbaum; Pinelopi K. Goldberg; Patrick J. Kennedy; Amit K. Khandelwal
Abstract: After decades of supporting free trade, in 2018 the U.S. raised import tariffs and major trade partners retaliated. We analyze the short-run impact of this return to protectionism on the U.S. economy. Import and retaliatory tariffs caused large declines in imports and exports. Prices of imports targeted by tariffs did not fall, implying complete pass-through of tariffs to duty-inclusive prices. The resulting losses to U.S. consumers and firms who buy imports was $51 billion, or 0.27% of GDP. We embed the estimated trade elasticities in a general-equilibrium model of the U.S. economy. After accounting for tariff revenue and gains to domestic producers, the aggregate real income loss was $7.2 billion, or 0.04% of GDP. Import tariffs favored sectors concentrated in politically competitive counties, and the model implies that tradeable-sector workers in heavily Republican counties were the most negatively affected due to the retaliatory tariffs.
Keywords: trade war; tariffs; protectionism; US economy
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| import tariffs (F19) | decline in imports (F14) |
| import tariffs (F19) | duty-inclusive prices (P22) |
| import tariffs (F19) | loss for consumers and firms (F61) |
| import tariffs (F19) | aggregate real income loss (J17) |
| retaliatory tariffs (F13) | significant negative effects on tradeable sector workers in heavily Republican counties (F66) |
| aggregate losses could be zero (G33) | net effect on the US economy (F69) |