To What Extent Are Tariffs Offset by Exchange Rates?
22 Pages Posted: 5 Feb 2020
Date Written: January 13, 2020
In theory, tariffs are partially offset by a currency appreciation in the tariff imposing country or by a depreciation in the country on which the tariff is imposed. Based on a calibrated model, this paper finds that US tariffs imposed in 2018 should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. Tariff-related news explains about one-third of the renminbi depreciation observed in 2018.
Keywords: Tariffs, Exchange Rates, Dollar, Renminbi
JEL Classification: F31, F42
Suggested Citation: Suggested Citation