The Return to Protectionism

Pablo D. Fajgelbaum, Pinelopi K. Goldberg, Patrick J. Kennedy, Amit K. Khandelwal

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

After decades of supporting free trade, in 2018 the United States 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 that 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 counties, and the model implies that tradeable-sector workers in heavily Republican counties were the most negatively affected due to the retaliatory tariffs. JEL Code: F1.

Original languageEnglish (US)
Pages (from-to)1-55
Number of pages55
JournalQuarterly Journal of Economics
Volume135
Issue number1
DOIs
StatePublished - Feb 1 2020
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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