Tariffs Passing Through Retailers: Do Tariffs Actually Protect Domestic Manufacturers?
Matthew Cole () and
Carsten Eckel ()
No 4735, CESifo Working Paper Series from CESifo
Historically, tariffs have been an attractive policy tool to protect domestic industries. The benefits of such a policy are based on theoretical models that assume foreign manufacturers sell directly to consumers. However, recent empirical evidence suggests that wholesalers and retailers play an active role in international trade. We present a model of retailers that illustrates how accounting for these strategic intermediaries can actually make some domestic manufacturers worse off in response to an increased tariff. Moreover, any production gains that occur are biased towards higher cost domestic manufacturers. This result is not driven by the cannibalization effect of the multiproduct firm literature rather it is the fact that retailers compete over the marginal consumer (the extensive margin).
Keywords: tariffs; retailing; pass-through; protection (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
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Working Paper: Tariffs Passing Through Retailers: Do Tariffs Actually Protect Domestic Manufacturers? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4735
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