Tariffs and Politics: Evidence from Trump's Trade Wars

72 Pages Posted: 1 Apr 2019 Last revised: 20 Oct 2019

See all articles by Thiemo Fetzer

Thiemo Fetzer

University of Warwick

Carlo Schwarz

University of Warwick

Date Written: October 18, 2019

Abstract

We use the recent trade escalation between the US, China, the European Union (EU), Canada and Mexico to study whether retaliatory tariffs are politically targeted. Using aggregate and individual-level data we find evidence that the retaliatory tariffs disproportionally targeted areas that swung to Trump in 2016, but not to other Republican candidates. We propose a novel simulation approach to construct counterfactual retaliation responses. This allows us to both quantify the extent of political targeting and assess the general feasibility. Further, the counterfactual retaliation responses allow us to shed light on the potential trade-offs between achieving a high degree of political targeting and managing the risks to ones own economy. China, while being constrained in its retaliation design, appears to put large weight on achieving maximal political targeting. The EU seems successful in maximizing the degree of political targeting, while at the same time minimizing the potential damage to its own economy and consumers.

Keywords: trade war, tariff, targeting, political economy, elections, populism

JEL Classification: F13, F14, F16, F55, D72

Suggested Citation

Fetzer, Thiemo and Schwarz, Carlo, Tariffs and Politics: Evidence from Trump's Trade Wars (October 18, 2019). Available at SSRN: https://ssrn.com/abstract=3349000 or http://dx.doi.org/10.2139/ssrn.3349000

Thiemo Fetzer

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Carlo Schwarz (Contact Author)

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

HOME PAGE: http://www.carloschwarz.eu

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