Fiscal Limits to Protectionism: The 2025 U.S.Tariff Laffer Curve

Pau S. Pujolas and Jack Rossbach

Department of Economics Working Papers from McMaster University

Abstract: We quantify the Tariff Laffer Curve for the U.S. using a multi-sector Ricardian model calibrated to the 2025 US trade war. We find revenue-maximizing tariffs of 20–30 percent and welfare-maximizing rates of 0–10 percent. We define the Marginal Fiscal Efficiency Index to partition tariffs into welfare-improving, trade-off, and revenue-decreasing regions. Expanding the trade war to more partners raises peak revenue even under retaliation, whereas coordinated retaliation sharply erodes welfare. By January 2026, 20 percent of U.S. tariffs exceed their Laffer peaks. Inverse-optimum estimation reveals diminished U.S. concern for foreign welfare, punitive treatment of China, and rising revenue motives.

Keywords: Laffer Curve; Tariffs; Applied General Equilibrium; International Trade (search for similar items in EconPapers)
JEL-codes: F11 F13 F14 F17 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2026-02
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2026-01

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