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Working Paper
What Determines State Heterogeneity in Response to U.S. Tariff Changes
We develop a structural framework to identify the sources of cross-state heterogeneity in response to U.S. tariff changes. We quantify the effects of unilaterally increasing U.S. tariffs by 25 percentage points across sectors. Welfare changes range from –0.8 percent in Oregon to 2.1 percent in Montana. States gain more when their sectoral comparative advantage covaries negatively with that of the aggregate U.S. Consequently, “preferred” changes in tariffs vary systematically across states, indicating the importance of transfers in aligning state preferences over trade policy. Foreign ...
Working Paper
Trade Policy is Real News: Theory and Evidence
We evaluate the aggregate effects of changes in trade barriers when these changes can be implemented slowly over time and trade responds gradually to changes in trade barriers because firm-level trade costs make exporting a dynamic decision. Our model shows how expectations of changes in trade barriers affect the economy. We find that while decreases in trade barriers increase economic activity, expectations of lower future trade barriers temporarily decrease investment, hours worked, and output. Further- more, canceling an expected decline in future trade barriers raises investment and ...