About the author
Mark Perry Tweets
What’s New on AEI
Sign up for AEI Today
More options: Share,
The economic impact of Trump’s trade war? Higher prices and reduced income for the USA
View related content: Carpe Diem
From the NBER Working Paper “The Impact of the 2018 Trade War on U.S. Prices and Welfare” by Mary Amiti (Federal Reserve Bank of New York), Stephen J. Redding (Princeton) and David Weinstein (Columbia):
Here’s the paper’s abstract (italics added):
This paper explores the impacts of the Trump administration’s trade policy on prices and welfare. Over the course of 2018, the U.S. experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply-chain network, reductions in availability of imported varieties, and complete passthrough of the tariffs into domestic prices of imported goods. Overall, using standard economic methods, we find that the full incidence of the tariff falls on domestic consumers, with a reduction in U.S. real income of $1.4 billion per month by the end of 2018. We also see similar patterns for foreign countries who have retaliated against the U.S., which indicates that the trade war also reduced real income for other countries.
Here’s the paper’s conclusion (italics added):
Economists have long argued that there are real income losses from import protection. Using the evidence to date from the 2018 trade war, we find empirical support for these arguments. We estimate the cumulative deadweight welfare cost (reduction in real income) from the U.S. tariffs to be around $6.9 billion during the first 11 months of 2018, with an additional cost of $12.3 billion to domestic consumers and importers in the form of tariff revenue transferred to the government. The deadweight welfare costs alone reached $1.4 billion per month by November of 2018.
The trade war also caused dramatic adjustments in international supply chains, as approximately $165 billion dollars of trade ($136 billion of imports and $29 billion of exports) is lost or redirected in 23 order to avoid the tariffs. We find that the U.S. tariffs were almost completely passed through into U.S. domestic prices, so that the entire incidence of the tariffs fell on domestic consumers and importers up to now, with no impact so far on the prices received by foreign exporters. We also find that U.S. producers responded to reduced import competition by raising their prices.
MP: The results of this study suggest that despite what Tariff Man thinks, a) China has not been “paying tariffs to the USA,” b) the trade war has reduced US real income and has not been responsible for “great economic results,” c) the tariffs have had a very noticeable impact measured in billions of dollars, not a “little impact,” on product costs in the USA, and d) the burden of the tariffs been borne almost completely by the USA, not China and other foreign exporters. #Winning?