NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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To What Extent Are Tariffs Offset By Exchange Rates?

Olivier Jeanne, Jeongwon Son

NBER Working Paper No. 27654
Issued in August 2020
NBER Program(s):International Finance and Macroeconomics

In theory, we should expect tariffs to be partially offset by a currency appreciation in the tariff-imposing country or by a depreciation in the country on which the tariff is imposed. We find, based on a calibrated model, that the tariffs imposed by the US in 2018-19 should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. We find that tariffs explained at most one fifth of the dollar effective appreciation but around two thirds of the renminbi effective depreciation observed in 2018-19.

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Document Object Identifier (DOI): 10.3386/w27654

 
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