Measuring the Unequal Gains from Trade

Project Outcomes Statement

In recent years, the U.S. has returned to protectionism by implementing waves of tariff increases on foreign trade partners, and trade partners subsequently raise tariffs on U.S. exporters. What are the impacts of these tariffs on the U.S. economy? How might these tariffs affect individuals across the income distribution and across space? This project studied these questions across two papers. In one paper, our analysis found that the tariff increases resulted in an aggregate loss of 0.04% GDP for the U.S. economy. This aggregate number is the sum of a 0.27% loss to U.S. purchases of imports because of higher tariff-inclusive prices. The loss is mitigated by gains to U.S. producers (0.05% GDP) and tariff revenue (0.18% GDP). Because U.S. production is not uniformly divided across the country, our analysis also confirms large heterogeneity in the impacts across the country based on countries' patterns of specialization. What are the likely implications across consumers with different incomes? Our second paper explores this question by developing an analytical framework to explore the distributional consequences of trade through the consumption channel. We find that lowering trade costs tends to benefit lower-income consumers relatively more than higher-income consumers. This is because trade lowers the relative price of tradeable goods, and lower-income consumers spend a larger share of their budget on tradeable goods.