A Quantitative Analysis of Tariffs across U.S. States

RePEc Short ID: psa547
ORCID iD: 0000-0002-3788-4511

Santacreu, Ana Maria; Sposi, Michael; Zhang, Jing

doi:10.20955/wp.2021.007

Working Paper

A Quantitative Analysis of Tariffs across U.S. States

Abstract: We develop a quantitative framework to assess the cross-state implications of a U.S. trade policy change: a unilateral increase in the import tariff from 2 to 25 across all goods-producing sectors. Although the U.S. gains overall from the tariff increase, we find the impact differs starkly across locations. Changes in real consumption (welfare) range from as high as 3.8% in Wyoming to $-0.3% in Florida, depending mainly on how exposed states are to differentially-impacted sectors. As a result, the "preferred'' tariff rate varies greatly across states. Foreign retaliation in trade policy substantially reduces the welfare gains across states, while perpetuating the cross-state variation in those gains. The presence of internal trade frictions amplifies the welfare impacts of changes in trade policy.

Keywords: International trade; Interstate trade; Welfare gains from trade;

JEL Classification: F11; F62;

https://doi.org/10.20955/wp.2021.007