Skip to content

Tariff Increases and the Potential Economic Effects


Tuesday, June 26, 2018

tariff impact
Thinkstock/Devonyu

Changes to U.S. trade policy have sparked questions about what the economic effects might be. A recent Economic Synopses looked at other countries that increased tariffs to see what might happen.

Economist Fernando Leibovici and Senior Research Associate Jonas Crews identified 16 times over the period 1980-2006 when a country increased import tariffs by at least 3.5 percentage points in a year. The authors chose 3.5 percentage points to ensure enough data for their analysis. If countries had multiple such episodes, only the first episode was used. They examined what happened from the year before the increase through the following five years from two vantage points:

  1. Imports
  2. Key macroeconomic variables

Tariff Increases and Imports

The authors found that tariff increases were persistent through five years. That is, tariffs remained persistently higher for at least five years following the increase.

They also found that the imports-to-GDP ratio decreased gradually following tariff increases, dropping close to 2.5 percentage points over the first four years after an increase.

Tariff Increases and Key Macroeconomic Variables

Leibovici and Crews also examined GDP per capita, the investment-to-GDP ratio and total annual wages for each country following tariff increases. They found that GDP per capita and wages each fell around 2 percentage points relative to trend over the first two years after an increase.

They also noted that the investment-to-GDP ratio declined by about 1 percentage point, with the decline persistent over five years.

Important Notes

“While these figures show that past tariff increases have been typically followed by large and persistent decreases in economic activity, this evidence does not necessarily mean that the higher tariffs caused these changes,” the authors wrote. “It is possible that other economic events might have driven tariff increases and (slightly later) recessions.”

Notes and References

1 The authors chose 3.5 percentage points to ensure enough data for their analysis. If countries had multiple such episodes, only the first episode was used.

Additional Resources

Posted In Trade  |  Tagged fernando leibovicijonas crewstradetariffsgdp per capitaimportsexportswagesinvestment
Commenting Policy: We encourage comments and discussions on our posts, even those that disagree with conclusions, if they are done in a respectful and courteous manner. All comments posted to our blog go through a moderator, so they won't appear immediately after being submitted. We reserve the right to remove or not publish inappropriate comments. This includes, but is not limited to, comments that are:
  • Vulgar, obscene, profane or otherwise disrespectful or discourteous
  • For commercial use, including spam
  • Threatening, harassing or constituting personal attacks
  • Violating copyright or otherwise infringing on third-party rights
  • Off-topic or significantly political
The St. Louis Fed will only respond to comments if we are clarifying a point. Comments are limited to 1,500 characters, so please edit your thinking before posting. While you will retain all of your ownership rights in any comment you submit, posting comments means you grant the St. Louis Fed the royalty-free right, in perpetuity, to use, reproduce, distribute, alter and/or display them, and the St. Louis Fed will be free to use any ideas, concepts, artwork, inventions, developments, suggestions or techniques embodied in your comments for any purpose whatsoever, with or without attribution, and without compensation to you. You will also waive all moral rights you may have in any comment you submit.
comments powered by Disqus

The St. Louis Fed uses Disqus software for the comment functionality on this blog. You can read the Disqus privacy policy. Disqus uses cookies and third party cookies. To learn more about these cookies and how to disable them, please see this article.