DP13389 Macroeconomic Consequences of Tariffs

Author(s): Davide Furceri, Swarnali Hannan, Jonathan D. Ostry, Andrew K Rose
Publication Date: December 2018
Date Revised: December 2018
Keyword(s): Exchange rate, inequality, output, productivity, protection, trade balance, unemployment
JEL(s): F13, O11
Programme Areas: International Trade and Regional Economics, International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13389

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.