Are US households losing the trade war?

Romesh Vaitilingam | Jun 05, 2019

Sections Economics Public Policy

Collections IGM Poll Trade

Over the course of 2018, the Trump administration imposed tariffs on approximately $283 billion of US imports, with rates ranging between 10 percent and 50 percent. In response, US trading partners, especially China, retaliated with tariffs averaging 16 percent on approximately $121 billion of US exports.

With tariff increases, tariffs on further products, and Chinese countermeasures all threatened, Chicago Booth’s Initiative on Global Markets invited its US panel of economic experts to express their views on the trade war’s likely impact on American households. The experts weighed in on whether US households would bear the bulk of the burden of recent tariffs, as well as whether those tariffs would be felt most acutely by lower-income populations.

Tariff incidence

Weighted by each expert’s confidence in their response, nearly 90 percent of respondents agreed or strongly agreed that the incidence of the tariffs will fall primarily on US households. Several panelists pointed to evidence in two recent studies published by the National Bureau of Economic Research, both of which find that US consumers have borne the brunt of the current trade war. Others referred to research on the impact of US import restrictions against washing machines.

Maurice Obstfeld of the University of California at Berkeley said, “There is some research to this effect, but this will certainly be true if current tariffs are extended over all US imports from China.”  James Stock at Harvard added, “Multiple researchers have found roughly full pass-through, see the recent IMF blog post.”

Although he agreed that the incidence of the tariffs would fall primarily on American households, DarrellDuffie of Stanford remarked, “The IMF says so. I’m not confident myself. Some loss to consumers offset by government tariff revenues, eventually reducing taxes.” University of Chicago’s Robert Shimer also expressed caution: “Agree in the short run. In the long run, some production will shift away from China.”

MIT’s David Autor observed, “They will also fall on Chinese consumers and producers. But within the US, much of incidence appears to be on households so far.” Daron Acemoglu, also of MIT, responded that he was uncertain, and commented, “There is too much uncertainty about how much damage these tariffs will do to China and global growth, so impossible to say.”

Larry Samuelson of Yale concluded, “Retaliation raises the very real prospect that American business will also bear a significant burden. Typically, no one wins a trade war.”

Distributional effects

The second statement focused on whether the effects of the tariffs and countermeasures would be felt most heavily by lower income groups and regions. Weighted by each expert’s confidence in their response, three-quarters of respondents either agreed or strongly agreed.

MIT’s Acemoglu, who agreed with the statement, noted, “Among US households, lower-income ones will bear most direct costs. But hard to know how any damage to global growth affects capital income.”  While Jose Scheinkman at Columbia responded that he was uncertain, he also pointed to analysis that “concludes that tariff increases in 1963–2014 resulted in more inequality.” Peter J. Klenow of Stanford referred to further evidence of the distributional effects of trade, as did Yale’s Judith Chevalier.

Among the other experts who agreed with the statement, Robert Hall of Stanford said, “True almost by definition. Prosperous people are better able to handle any economic change.” Yale’s Samuelson concurred: “Those with higher incomes will be better able to adjust to the tariff-induced distortions.” Shimer, at the University of Chicago, added, “Strongly agree for prices. For employment, impact will be on the middle of the distribution.”

Autor raised the broader issue of longstanding US concerns about numerous aspects of China’s industrial, technology, and trade policies: “Tariffs are undesirable but have gotten China’s attention—important given China’s longstanding trade malpractice.”