Tariffs Passing Through Retailers: Do Tariffs Actually Protect Domestic Manufacturers?

27 Pages Posted: 7 May 2014

See all articles by Matthew T. Cole

Matthew T. Cole

Florida International University (FIU)

Carsten Eckel

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 5, 2014

Abstract

Historically, tariffs have been an attractive policy tool to protect domestic industries. The benefits of such a policy are based on theoretical models that assume foreign manufacturers sell directly to consumers. However, recent empirical evidence suggests that wholesalers and retailers play an active role in international trade. We present a model of retailers that illustrates how accounting for these strategic intermediaries can actually make some domestic manufacturers worse off in response to an increased tariff. Moreover, any production gains that occur are biased towards higher cost domestic manufacturers. This result is not driven by the cannibalization effect of the multiproduct firm literature rather it is the fact that retailers compete over the marginal consumer (the extensive margin).

Keywords: tariffs, retailing, pass-through, protection

JEL Classification: F120, F130

Suggested Citation

Cole, Matthew T. and Eckel, Carsten, Tariffs Passing Through Retailers: Do Tariffs Actually Protect Domestic Manufacturers? (April 5, 2014). CESifo Working Paper Series No. 4735, Available at SSRN: https://ssrn.com/abstract=2432890 or http://dx.doi.org/10.2139/ssrn.2432890

Matthew T. Cole (Contact Author)

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Carsten Eckel

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Schackstr. 4
Munich, 80539
Germany

HOME PAGE: http://www.vwl.uni-muenchen.de/eckel

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) ( email )

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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