Trade Policy and Structural Change

Hayato Kato, Kensuke Suzuki, Motoaki Takahashi and Hayato Kato

No 12050, CESifo Working Paper Series from CESifo

Abstract: We examine how tariffs affect sectoral composition and welfare in an economy with nonhomothetic preferences and sectors being complements---key drivers of structural change. Beyond their conventional role in trade protection, tariffs influence industrial structure by altering relative prices and income levels. We qualitatively characterize these mechanisms and use a quantitative dynamic model to show that a counterfactual 20-percentage-point increase in U.S. manufacturing tariffs since 2001 would have raised the manufacturing value-added share by one percentage point and increased welfare by 0.36 percent. However, if all the U.S. trading partners responded reciprocally, U.S. welfare would decline by 0.12 percent.

Keywords: tariff; ricardian model of trade; structural transformation; nonhomothetic preferences; capital accumulation; trade war (search for similar items in EconPapers)
JEL-codes: F11 F13 F16 F43 O41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12050

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