It’s the first anniversary of US President Donald Trump’s trade war and two recent papers by eminent economists have provided the first real estimates of the impact of the protectionist tariffs on the American economy. Both papers find that US consumers are the worst off as a result of the protectionist tariffs, from both reduced choice and higher prices. In fact, the first study (co-authored by three economists from Columbia University, Princeton University, and the New York Fed) finds that the full incidence of the tariffs fall on American domestic consumers (complete pass-through of the U.S. tariffs into U.S. domestic prices), and that as a result American consumers’ real income has fallen by US$1.4 billion per month by the end of 2018. In total, there is a cumulative deadweight welfare cost (reduction in real income) from the U.S. tariffs of around US$6.9 billion during the first 11 months of 2018. They also found that US producers responded to reduced import competition (because of the protection afforded by import tariffs) by raising their prices – further hurting domestic consumers as well as producers who use these goods as inputs. These are classic exemplifications of the costs of import protection.

The second paper, by economists at UCLA, NBER, Yale, World Bank, and Columbia Business School, find similar results. They estimate an annual loss for the American economy of US$68.8 billion due to higher import prices. Notably, they find a horizontal supply curve for the export supply of foreign goods into the U.S., suggesting that U.S. consumers bear the incidence of the U.S. tariffs. Meanwhile, they estimate gains of US$21.6 billion from higher prices received by US producers. The redistribution from buyers of foreign goods to U.S. producers and the government nets out to a negative effect on the American economy of US$7.8 billion on an annual basis; 0.04% of GDP.

Now onto some of the very interesting distributional effects that their study found. Firstly, their finding that the protectionist tariffs protected sectors concentrated in electorally competitive counties (tight race between Republican and Democrat) is not surprising. But what it is revealing – and indeed quite significant when considering the possible political fallout of the tariffs – is that foreign retaliatory tariffs affected sectors that are concentrated in Republican counties (for instance, agricultural workers like soybean farmers). Most interestingly, their computations show that workers in tradeable sectors in heavily Republican counties experienced the largest losses. Now it would be very interesting to see, in the Presidential Election 2020, how these economic impacts play out in the polls.

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Both papers can be found here: