The Consumption Response to Protectionism

Abstract

Despite policy aims to support income and employment, we show that U.S. households in counties more exposed to protective tariffs spend less over time. Spending declines coincide with falling wages and persist after accounting for exposure to pass-through and retaliatory tariffs. Reductions in both quantities and prices point to a demand-driven contraction. Effects are stronger when tariffs target input rather than consumption goods, and are concentrated among working-class Americans, who subsequently cut discretionary spending. We underscore the vertical integration of U.S. and Chinese firms within tariff-targeted industries. Protectionism does not benefit domestic labor market and may risk local household welfare.

Keywords: Trade War, Supply Chain, Labor Market, Household Consumption, Consumer Finance