The Macroeconomics of Tariff Shocks

Adrien Auclert, Matthew Rognlie and Ludwig Straub

No 33726, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the short-run effects of import tariffs on GDP and the trade balance in an open-economy New Keynesian model with intermediate input trade. We find that temporary tariffs cause a downturn whenever the import elasticity is below an openness-weighted average of the export elasticity and the intertemporal substitution elasticity. We argue that this condition is likely satisfied in practice because durable goods generate great scope for intertemporal substitution, and because it is easier to lose competitiveness on the global market than to substitute between home and foreign goods. Unilateral tariffs tend to improve the trade balance, but when other countries retaliate the trade balance worsens and the contraction deepens. Taking into account the contractionary effect of tariffs dramatically lowers the optimal unilateral tariff derived in standard trade theory.

JEL-codes: E0 F10 F40 (search for similar items in EconPapers)
Date: 2025-04
New Economics Papers: this item is included in nep-dge, nep-int and nep-opm
Note: EFG IFM ME
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Citations: View citations in EconPapers (8)

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Working Paper: The Macroeconomics of Tariff Shocks (2025)
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