The Return to Protectionism

72 Pages Posted: 12 Mar 2019

See all articles by Pablo Fajgelbaum

Pablo Fajgelbaum

University of California, Los Angeles (UCLA) - Department of Economics

Pinelopi Goldberg

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Patrick Kennedy

Columbia University - Columbia Business School

Amit Khandelwal

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Bureau for Research and Economic Analysis of Development (BREAD)

Date Written: March 2019

Abstract

We analyze the impacts of the 2018 trade war on the U.S. economy. We estimate import demand and export supply elasticities using changes in U.S. and retaliatory tariffs over time. Imports from targeted countries declined 31.5% within products, while targeted U.S. exports fell 11.0%. We find complete pass-through of U.S. tariffs to variety-level import prices. Using a general equilibrium framework that matches these elasticities, we compute the aggregate and regional impacts. Annual consumer and producer losses from higher costs of imports were $68.8 billion (0.37% of GDP). After accounting for higher tariff revenue and gains to domestic producers from higher prices, the aggregate welfare loss was $7.8 billion (0.04% of GDP). U.S. tariffs favored sectors located in politically competitive counties, but retaliatory tariffs offset the benefits to these counties. We find that tradeable-sector workers in heavily Republican counties were the most negatively affected by the trade war.

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Suggested Citation

Fajgelbaum, Pablo and Goldberg, Pinelopi (Penny) and Kennedy, Patrick and Khandelwal, Amit Kumar, The Return to Protectionism (March 2019). NBER Working Paper No. w25638. Available at SSRN: https://ssrn.com/abstract=3350407

Pablo Fajgelbaum (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

Pinelopi (Penny) Goldberg

Yale University - Department of Economics ( email )

P.O. Box 208268
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New Haven, CT 06520-8268
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National Bureau of Economic Research (NBER)

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Yale University - Cowles Foundation

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Patrick Kennedy

Columbia University - Columbia Business School ( email )

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United States

Amit Kumar Khandelwal

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www0.gsb.columbia.edu/faculty/akhandelwal/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/amit_khandelwal

Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
Durham, NC 90097
United States

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