The Return to Protectionism

81 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); Jameel Poverty Action Lab (JPAL)

Date Written: March 2019

Abstract

After decades of supporting free trade, in 2018 the U.S. raised import tariffs and major trade partners retaliated. We analyze the short-run impact of this return to protectionism on the U.S. economy. Import and retaliatory tariffs caused large declines in imports and exports. Prices of imports targeted by tariffs did not fall, implying complete pass-through of tariffs to duty-inclusive prices. The resulting losses to U.S. consumers and firms who buy imports was $51 billion, or 0.27% of GDP. We embed the estimated trade elasticities in a general-equilibrium model of the U.S. economy. After accounting for tariff revenue and gains to domestic producers, the aggregate real income loss was $7.2 billion, or 0.04% of GDP. Import tariffs favored sectors concentrated in politically competitive counties, and the model implies that tradeable-sector workers in heavily Republican counties were the most negatively affected due to the retaliatory tariffs.

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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
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Pinelopi (Penny) Goldberg

Yale University - Department of Economics ( email )

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Yale University - Cowles Foundation

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Patrick Kennedy

Columbia University - Columbia Business School ( email )

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Amit Kumar Khandelwal

Columbia Business School - Finance and Economics ( email )

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New York, NY 10027
United States

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

National Bureau of Economic Research (NBER) ( email )

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

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

Duke University
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United States

Jameel Poverty Action Lab (JPAL) ( email )

66 bis avenue Jean Moulin
United States

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