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Quarterly Journal of Economics Vol. 135 No. 1 2020

The Return to Protectionism*

Pablo D. Fajgelbaum1; Pinelopi K. Goldberg2; Patrick Kennedy3; Amit Khandelwal4

1 University of California, Los Angeles, and National Bureau of Economic Research · 2 Yale University, National Bureau of Economic Research, (on leave) and World Bank Group · 3 University of California, Berkeley · 4 Columbia University and National Bureau of Economic Research

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Abstract

After decades of supporting free trade, in 2018 the United States raised import tariffs and major trade partners retaliated. We analyze the short-run impact of this return to protectionism on the U.S. economy. Import and retaliatory tariffs caused large declines in imports and exports. Prices of imports targeted by tariffs did not fall, implying complete pass-through of tariffs to duty-inclusive prices. The resulting losses to U.S. consumers and firms that buy imports was $51 billion, or 0.27% of GDP. We embed the estimated trade elasticities in a general-equilibrium model of the U.S. economy. After accounting for tariff revenue and gains to domestic producers, the aggregate real income loss was $7.2 billion, or 0.04% of GDP. Import tariffs favored sectors concentrated in politically competitive counties, and the model implies that tradeable-sector workers in heavily Republican counties were the most negatively affected due to the retaliatory tariffs. JEL Code: F1.

DOI
10.1093/qje/qjz036
Volume
135
Issue
1
Pages
1-55
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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