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 U.S. 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; inequality; consumption; welfare; taxation;

JEL Classification: E21; F10; F62; H21;

https://doi.org/10.24149/gwp413r1

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2023-03-29

Number: 413

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• Working Paper Revision: On the Distributional Effects of International Tariffs