Tariffs Tax the Poor More: Evidence from Household Consumption During the US-China Trade War

64 Pages Posted: 30 May 2024

See all articles by Hong Ma

Hong Ma

Tsinghua University - School of Economics & Management

Luca Macedoni

Aarhus University - Department of Economics and Business Economics

Jingxin Ning

University of International Business and Economics

Mingzhi Xu

INSE at Peking University

Date Written: May 29, 2024

Abstract

Using disaggregated household expenditure data, we provide novel evidence on how the US-China trade war has differentially affected US households across income groups. The analysis is based on a highly flexible, nested CES framework with time-varying, household-specific demand shifters. We estimate the key parameters of the model to recover household-specific price indexes. The increases in US tariffs on Chinese products between 2018 and 2019 led to a 1.09% increase in the cost of living of households, with a relatively larger impact on low-income households. In fact, we document a 0.88 percentage point smaller increase in the cost of living for the top 20% income households relative to the bottom 20%. This differential effect is attributed to wealthier households' greater ability to adjust their expenditure shares across products and to face a smaller reduction in product variety.

Keywords: US-China Trade War, Tariffs, Income Inequality, Distributional Effects of Tariffs, Household Consumption

JEL Classification: F14, D31, F13

Suggested Citation

Ma, Hong and Macedoni, Luca and Ning, Jingxin and Xu, Mingzhi, Tariffs Tax the Poor More: Evidence from Household Consumption During the US-China Trade War (May 29, 2024). Available at SSRN: https://ssrn.com/abstract=4846802 or http://dx.doi.org/10.2139/ssrn.4846802

Hong Ma (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Luca Macedoni

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Jingxin Ning

University of International Business and Economics ( email )

School of International trade and Economics
Beijing, Beijing 100029
China

Mingzhi Xu

INSE at Peking University ( email )

Peking University
China
Beijing, Beijing 100871
China

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