Tariff Policy Activism and the Trade Balance Under Multiplicative Uncertainty: A Cautionary Tale

Alfred V Guender and Onur Koska

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: In the face of multiplicative uncertainty about the effects of a tariff on the trade balance, policymakers should err on the side of caution and use tariffs less aggressively. This important insight is illustrated in two separate cases, one where multiplicative uncertainty arises only in the pass-through from the tariff to import prices, and the other where multiplicative uncertainty is present in both the pass-through to import prices and the elasticity of the trade balance with respect to import prices.

Keywords: trade balance; tariff policy; uncertainty; pass-through; elasticity (search for similar items in EconPapers)
JEL-codes: F13 F5 F6 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2025-11
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2025-59

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