The Macroeconomic Effects of Trade Tariffs: Revisiting the Lerner Symmetry Result

Jesper Lindé and Andrea Pescatori

No 12534, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the robustness of the Lerner symmetry result in an open economy New Keynesian model with price rigidities. While the Lerner symmetry result of no real effects of a combined change in import tariff and export subsidy holds up approximately for a number of alternative assumptions, we obtain quantitatively important long-term deviations under complete international asset markets. Direct pass-through of tariffs and subsidies to prices and slow exchange rate adjustment can also generate significant short-term deviations from Lerner. Deviations from symmetry, however, do not necessarily imply an impact on global output and are often limited to a redistribution of production and consumption across countries. Finally, we quantify the macroeconomic costs of a trade war and find that they can be substantial, with permanently lower income and trade volumes. However, a fully symmetric retaliation to a unilaterally imposed border adjustment tax can prevent any sizable adverse real or nominal effects.

Keywords: Incomplete and complete markets; Border adjustment tax; Trade war; New keynesian open-economy model; Import tariffs and export subsidies; Lerner condition (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-int, nep-mac and nep-opm
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: The macroeconomic effects of trade tariffs: Revisiting the Lerner symmetry result (2019)
Working Paper: The Macroeconomic Effects of Trade Tariffs: Revisiting the Lerner Symmetry Result (2018)
Working Paper: The Macroeconomic Effects of Trade Tariffs: Revisiting the Lerner Symmetry Result (2017)
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