The Propagation of Tariff Shocks via Production Networks

Anastasiia Antonova, Luis Huxel, Mykhailo Matvieiev and Müller, Gernot

No 20305, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Imports feature at all stages of production as well as in final consumption, and this is key to how tariff shocks play out. If imposed on imports in upstream sectors, import tariffs lower domestic output in downstream sectors; if imposed downstream, they raise upstream production. The aggregate effect of tariffs can be recessionary or expansionary—depending on the strength of upstream and downstream effects. Tariffs raise inflation no matter what, but how persistently they do so also depends on the network structure. We establish these results in a New Keynesian small open-economy model with an input-output network and provide supporting evidence based on US import tariffs. Simulating the "Liberation Day" tariff package, we find it highly stagflationary.

JEL-codes: E32 F41 (search for similar items in EconPapers)
Date: 2025-05
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