Department of Economics
University of California at Berkeley
Berkeley, CA 94720
Institutional Affiliation: University of California at Berkeley
NBER Working Papers and Publications
|March 2019||The Return to Protectionism|
with Pablo D. Fajgelbaum, Pinelopi K. Goldberg, Amit K. Khandelwal: w25638
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 cou...