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Estimating the Impacts of Tariff Changes: Two Illustrative Scenarios

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  • Karyne B. Charbonneau
  • Anthony Landry

Abstract

We build upon new developments in the international trade literature to construct a quantitative Ricardian framework similar to Caliendo and Parro (2015) to isolate and estimate the long-run economic impacts of tariff changes. Our framework incorporates the most recent data and shows that the trade elasticities have changed considerably since the 1990s—highlighting the need to use recent data to quantitatively evaluate newly imposed and proposed tariff schedules. We apply our model and use our estimated elasticities to measure the long-run economic impact of the recently announced US tariffs on steel and aluminum and the first round of additional tariffs between the United States and China. Our results suggest that modifying the current global tariff schedules would imply considerable changes in trade flows and sectoral reallocations, but modest impacts on longrun output levels.

Suggested Citation

  • Karyne B. Charbonneau & Anthony Landry, 2018. "Estimating the Impacts of Tariff Changes: Two Illustrative Scenarios," Staff Analytical Notes 2018-29, Bank of Canada.
  • Handle: RePEc:bca:bocsan:18-29
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    References listed on IDEAS

    as
    1. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    2. Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, vol. 92(1), pages 34-50.
    3. Anthony Landry, 2018. "Capital-Goods Imports and U.S. Growth," 2018 Meeting Papers 208, Society for Economic Dynamics.
    4. Lorenzo Caliendo & Fernando Parro, 2015. "Estimates of the Trade and Welfare Effects of NAFTA," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(1), pages 1-44.
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    More about this item

    Keywords

    Recent economic and financial developments; Trade Integration;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • F68 - International Economics - - Economic Impacts of Globalization - - - Policy

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