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Working Paper

On the Distributional Effects of International Tariffs

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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 labor and capital income taxes and increase transfers, 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 and low-income workers, while only wealthy households experience a welfare gain.
Topics
Econometrics modeling and forecasting
Financial well-being
02.14.2022ISSN 2573-7953 WP 20-18ROriginal Paper WP 20-18Revisions WP 20-18R2DOI 10.26509/frbc-wp-202018r
Keywords tariffs, inequality, consumption, welfare, taxation.
JEL Classification Codes E21, F10, F62, H21

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Carroll, Daniel R., and Sewon Hur. 2022. “On the Distributional Effects of International Tariffs.” Federal Reserve Bank of Cleveland, Working Paper No. 20-18R. https://doi.org/10.26509/frbc-wp-202018r