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Tariff wars, unemployment, and top incomes

Author

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  • Dinopoulos, Elias
  • Heins, Gunnar
  • Unel, Bulent

Abstract

Motivated by the 2018–19 global tariff war, we develop a multi-country trade model with occupational choice, heterogeneous firms, and unemployment. The model features a complete tariff pass-through and positive optimal tariffs addressing product and labor-market distortions. The quantitative analysis of the model with four countries/regions shows that raising tariffs unilaterally by a country increases welfare but also raises unemployment and top incomes in that country, whereas having the opposite impact on tariff-targeted countries. A global tariff war reduces every country’s welfare, unemployment, and top-income inequality, whereas moving from a worldwide tariff war to free trade raises every country’s welfare, unemployment, and top-income inequality.

Suggested Citation

  • Dinopoulos, Elias & Heins, Gunnar & Unel, Bulent, 2024. "Tariff wars, unemployment, and top incomes," Journal of Monetary Economics, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:moneco:v:148:y:2024:i:c:s0304393224000692
    DOI: 10.1016/j.jmoneco.2024.103616
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    More about this item

    Keywords

    Tariff wars; Optimal tariffs; Nash tariffs; Occupational choice; Entrepreneurs; Top incomes; Directed search; Unemployment; Welfare;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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