Tariffs, Automation, and Business Dynamism

Stephane Auray, Michael B Devereux and Eyquem, Aurélien

No 21264, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Can protectionism revive domestic production, slow automation, and help routine workers? We address this question in a dynamic open-economy model with heterogeneous firms, endogenous entry, and task-based production in which routine tasks can be performed by workers or robots. Import tariffs reallocate demand toward domestic goods, reshape markups and entry incentives, and generate fiscal revenues rebated to households. As a result, tariffs raise GDP and consumption measured at market prices and temporarily slow automation, even though intermediate output at factor prices and trade volumes decline. The gains are unevenly distributed: routine workers benefit robustly through transfers and reduced training, non-routine workers face opposing wage and rebate effects, and firm owners gain in aggregate as higher domestic demand and entry expand total profits despite lower per-firm values. Aggregate welfare gains hinge critically on key assumptions (automation, training, endogenous entry) and on how tariff revenues are rebated. In the baseline with uniform transfers, the welfare-maximizing tariff lies below the classical monopoly formula, while alternative rebate schemes can shift it substantially. Overall, the results caution against viewing tariffs as a simple tool for reindustrialization and highlight the role of technology adoption and fiscal incidence in evaluating protectionist policies.

Keywords: Protectionism; Trade wars; Automation; Business dynamism (search for similar items in EconPapers)
JEL-codes: F30 F40 F41 (search for similar items in EconPapers)
Date: 2026-03
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