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Title: Macroeconomic Consequences of Tariffs

Author(s): Davide Furceri, Swarnali Hannan, Jonathan D. Ostry and Andrew K Rose

Publication Date: December 2018

Keyword(s): Exchange rate, inequality, output, productivity, protection, trade balance and unemployment

Programme Area(s): International Macroeconomics and Finance and International Trade and Regional Economics

Abstract: We study the macroeconomic consequences of tariffs. We estimate impulse response functions from local projections using a panel of annual data that spans 151 countries over 1963-2014. We find that tariff increases lead, in the medium term, to economically and statistically significant declines in domestic output and productivity. Tariff increases also result in more unemployment, higher inequality, and real exchange rate appreciation, but only small effects on the trade balance. The effects on output and productivity tend to be magnified when tariffs rise during expansions, for advanced economies, and when tariffs go up, not down. Our results are robust to a large number of perturbations to our methodology, and we complement our analysis with industry-level data.

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Bibliographic Reference

Furceri, D, Hannan, S, Ostry, J and Rose, A. 2018. 'Macroeconomic Consequences of Tariffs'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13389