On the Distributional Effects of International Tariffs

RePEc Short ID: pca568
ORCID iD: 0000-0003-2708-3232

Carroll, Daniel R.; Hur, Sewon

doi:10.26509/frbc-wp-202018r

Working Paper Revision

On the Distributional Effects of International Tariffs

Abstract: We provide a quantitative analysis of the distributional effects of the 2018 increase in tariffs by the US and its major trading partners. We build a trade model with incomplete asset markets and households that are heterogeneous in their age, income, wealth, and labor skill. When tariff revenues are used to reduce labor and capital income taxes and increase transfers, the average welfare loss from the trade war is equivalent to a permanent 0.1 percent reduction in consumption. Much larger welfare losses are concentrated among retirees and low-wealth and low-income workers, while only wealthy households experience a welfare gain.

Keywords: tariffs; consumption; taxation; inequality; welfare;

JEL Classification: E21; F10; F62; H21;

https://doi.org/10.26509/frbc-wp-202018r