What are the economic effects of a tariff increase in a large economy

Introduction

The economic effects of a tariff increase in a large economy are multifaceted, impacting various aspects such as domestic output, productivity, employment, inequality, and trade balances. This synthesis aims to consolidate findings from multiple research papers to provide a comprehensive understanding of these effects.

Key Insights

Decline in Domestic Output and Productivity:
- Tariff increases lead to significant declines in domestic output and productivity in the medium term .
Increase in Unemployment and Inequality:
- Higher tariffs result in more unemployment and increased inequality .
Real Exchange Rate Appreciation:
- Tariff hikes cause real exchange rate appreciation, making domestic goods more expensive relative to foreign goods .
Minimal Impact on Trade Balance:
- The effects of tariff increases on the trade balance are generally small and insignificant .
Impact on Consumer Prices and Real Income:
- Tariff increases lead to substantial rises in the prices of intermediates and final goods, reducing real income for consumers and importers .
Distortion of Trade and Production Decisions:
- Increased tariffs distort trade and production decisions, leading to economic losses and reduced import volumes.
Supply Chain Adjustments:
- Firms may adjust their supply bases to mitigate increased costs due to tariffs, altering the complexity and structure of supply chains.

Conclusion

In summary, increasing tariffs in a large economy generally leads to declines in domestic output and productivity, higher unemployment and inequality, and real exchange rate appreciation. The impact on the trade balance is minimal, but consumer prices rise significantly, reducing real income. Additionally, tariffs distort trade and production decisions and prompt firms to adjust their supply chains. These findings highlight the broad and often adverse economic consequences of tariff increases.

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What are the economic effects of a tariff increase in a large economy

Summary

Introduction

Key Insights

Conclusion

Sources and full results

Tariff Reform in a Small Open Economy with Public Production

Tariff reforms can improve the welfare of a small open economy with public production, especially if public production is initially abundant.

Macroeconomic Consequences of Tariffs

Tariff increases lead to significant declines in domestic output and productivity, increased unemployment, higher inequality, and small effects on the trade balance.

Are tariffs bad for growth? Yes, say five decades of data from 150 countries☆

Tariff increases are associated with a significant and persistent decline in output growth, supporting the view that the ongoing trade war may be costly for the global economy.

The Macroeconomy After Tariffs

Tariff increases lead to significant declines in domestic output and productivity, higher unemployment, inequality, real exchange rate appreciation, and insignificant changes to the trade balance.

The effects of tariff increases on supply base complexity: A conceptual framework

Tariff increases can lead to firms adjusting their supply base structure and complexity to mitigate increased importing costs, with factors like severity, timing uncertainty, and geographical scope influencing this relationship.

The Impact of the 2018 Tariffs on Prices and Welfare

The Trump administration's tariffs in 2018 led to increased prices, supply-chain disruptions, and a $1.4 billion reduction in aggregate US real income per month.

Import tariffs and growth in a small open economy

Differential tariffs are generally welfare-optimal, and a revenue-neutral tariff reform can increase growth and welfare in a small open economy, with the optimal structure varying depending on the replacement regime.

Effects of Eliminating the US–China Trade Dispute Tariffs

Eliminating the US-China trade dispute tariffs could generate substantial real income gains for both countries and lower US consumer prices.

The price effect of tariff liberalization: Measuring the impact on household welfare

Tariff liberalization in Mexico benefits richer households and urban areas, while southern states are largely bypassed, with the overall positive effect masking significant differences in the distribution of gains across income levels and geographic regions.

Impacts of a rise in electricity tariff on prices of other products in Vietnam

A rise in electricity tariff in Vietnam would drive up the prices of all other products, but implementing such an increase at once is socially difficult due to high inflation rates.

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