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-202018r2

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 distortionary taxes on consumption, labor, and capital income, 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 households, 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-202018r2