Working Paper

The Design and Effect of Tariff Retaliation: Evidence from the European Union

Abstract: We show that the EU's 2018 retaliation against US steel and aluminum tariffs targeted goods with low US import dependence and high substitutability. For the majority of tariffed goods, the US share of EU imports declined notably and remained below pre-2018 levels even after the retaliatory tariffs were lifted, reflecting asymmetric effects of tariffs on trade diversion. Moreover, although the retaliatory tariffs were instantly and fully passed through to EU importers, the retaliation did not lead to domestic price pressures as we find no evidence for inflationary effects on consumer and producer prices.

JEL Classification: E31; F13; F14; F42; F62;

https://doi.org/10.17016/IFDP.2026.1436

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2026-03-20

Number: 1436