CDEP Faculty Affiliate Amit Khandelwal has a paper forthcoming in the Quarterly Journal of Economics titled "The Return to Protectionism" with Pablo D. Fajgelbaum, Pinelopi K. Goldberg, and Patrick R. Kennedy. After decades of supporting free trade, in 2018 the United States raised import tariffs and major trade partners retaliated. The researchers 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 that buy imports was $51 billion, or 0.27% of GDP. They 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.
Find the paper here.
