Impact of the Trade War on U.S. Economy

Over the course of 2018, the U.S. imposed import tariffs on approximately $283 billion of U.S. imports, with rates ranging between 10% and 50%. In response, U.S. trading partners, especially China, have retaliated with tariffs averaging 16% on approximately $121 billion of U.S. exports. The 2018 trade war had an almost immediate impact on prices in the U.S. economy. U.S. import tariffs cost the American economy $7.8 billion dollars in lost gross domestic product, according to a new research paper authored by a team of economists at UC Berkeley, Columbia, Yale, UCLA as well as Penny Goldberg, the chief economist of the World Bank.

The researchers found that protective tariffs helped American producers, such as Rust Belt steel mills and washing-machine makers, gain $23 billion in new revenue. The federal government collected an estimated $39 billion from the new tariff. But higher costs to consumers and retaliatory tariffs on export-dependent industries, like Midwestern soybean farmers, amounted to a net economy-wide loss of $7.8 billion.

According to another paper, by the economists from Columbia, Princeton, and the New York Federal Reserve, U.S. tariffs were almost completely passed on to consumers through domestic prices. Import tariffs were costing U.S. consumers and the firms that import foreign goods an additional $3 billion per month in added tax costs and another $1.4 billion dollars per month in deadweight welfare (efficiency) losses. Tariffs have also changed the pricing behavior of U.S. producers by protecting them from foreign competition and enabling them to raise prices and markups.