Tariffs and politics: evidence from Trump's trade wars

Thiemo René Fetzer, Carlo Schwarz and Thiemo Fetzer
Authors registered in the RePEc Author Service: Thiemo Fetzer

No 7553, CESifo Working Paper Series from CESifo

Abstract: We use the recent trade escalation between the US, China, the European Union (EU), Canada and Mexico to study whether retaliatory tariffs are politically targeted. Using aggregate and individual-level data we find evidence that the retaliatory tariffs disproportionally targeted areas that swung to Trump in 2016, but not to other Republican candidates. We propose a novel simulation approach to construct counterfactual retaliation responses. This allows us to both quantify the extent of political targeting and assess the general feasibility. Further, the counterfactual retaliation responses allow us to shed light on the potential trade-offs between achieving a high degree of political targeting and managing the risks to ones own economy. China, while being constrained in its retaliation design, appears to put large weight on achieving maximal political targeting. The EU seems successful in maximizing the degree of political targeting, while at the same time minimizing the potential damage to its own economy and consumers.

Keywords: trade war; tariff; targeting; political economy; elections; populism (search for similar items in EconPapers)
JEL-codes: D72 F13 F14 F16 F55 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-int and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Tariffs and Politics: Evidence from Trump’s Trade Wars (2021)
Working Paper: Tariffs and Politics: Evidence from Trump’s Trade Wars (2019)
Working Paper: Tariffs and Politics: Evidence from Trump's Trade Wars (2019)
Working Paper: Tariffs and Politics: Evidence from Trump’s Trade Wars (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7553

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