On the Distributional Effects of International Tariffs
61 Pages Posted: 8 Jul 2020 Last revised: 14 Feb 2023
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On the Distributional Effects of International Tariffs
On the Distributional Effects of International Tariffs
Date Written: February 13, 2023
Abstract
We provide a quantitative analysis of the distributional effects of the 2018 increase in tariffs by the US and its major trading partners. We build a trade model with incomplete asset markets and households that are heterogeneous in their age, income, wealth, and labor skill. When tariff revenues are used to reduce distortionary taxes on consumption, labor, and capital income, the average welfare loss from the trade war is equivalent to a permanent 0.1 percent reduction in consumption. Much larger welfare losses are concentrated among retirees and low-wealth households, while only wealthy households experience a welfare gain.
Keywords: tariffs, inequality, consumption, welfare, taxation
JEL Classification: E21, F10, F62, H21
Suggested Citation: Suggested Citation