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The welfare consequences of import tariffs: A quantitative perspective

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  • Felbermayr, Gabriel
  • Jung, Benjamin
  • Larch, Mario

Abstract

The quantitative trade literature often does not distinguish between tariffs and iceberg trade costs. This paper explores qualitatively and quantitatively how this distinction matters for the gains from trade. Most obviously, tariffs generate government revenues, while icebergs do not. In models of monopolistic competition, they may also affect entry. Finally, depending on whether they are modeled as cost or demand shifters, tariffs may have different implications on profits, entry, and, in turn, on the elasticity of trade flows and welfare. We show that the welfare formula by Arkolakis, Costinot, and Rodriguez-Clare (2012) requires qualification, even in the simple single-sector case. We find that the quantitative welfare consequences of cost- versus demand-shifting tariffs can be important.

Suggested Citation

  • Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2015. "The welfare consequences of import tariffs: A quantitative perspective," Journal of International Economics, Elsevier, vol. 97(2), pages 295-309.
  • Handle: RePEc:eee:inecon:v:97:y:2015:i:2:p:295-309
    DOI: 10.1016/j.jinteco.2015.05.002
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    1. Gabriel Felbermayr & Benjamin Jung, 2018. "Market size and TFP in the Melitz model," Review of International Economics, Wiley Blackwell, vol. 26(4), pages 869-891, September.
    2. Haaland, Jan I. & Venables, Anthony J., 2016. "Optimal trade policy with monopolistic competition and heterogeneous firms," Journal of International Economics, Elsevier, vol. 102(C), pages 85-95.
    3. Martin Hauptfleisch, 2019. "Financial Decision-Making Using Data," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 6-2019, November.
    4. de Pinto, Marco & Michaelis, Jochen, 2019. "The labor market effects of trade union heterogeneity," Economic Modelling, Elsevier, vol. 78(C), pages 60-72.
    5. Tibor Besedeš & Matthew T. Cole, 2017. "Distorted Trade Barriers: A Dissection of Trade Costs in a “Distorted Gravity” Model," Review of International Economics, Wiley Blackwell, vol. 25(1), pages 148-164, February.
    6. Naoto JINJI & Kazunobu HAYAKAWA & Nuttawut LAKSANAPANYAKUL & Toshiyuki MATSUURA & Taiyo YOSHIMI, 2020. "A New Approach for Quantifying the Costs of Utilizing Regional Trade Agreements," Discussion papers e-19-010, Graduate School of Economics , Kyoto University.
    7. Giovanni Federico & Antonio Tena-Junguito, 2017. "A tale of two globalizations: gains from trade and openness 1800–2010," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(3), pages 601-626, August.
    8. Gabriel Felbermayr & Marina Steininger, 2017. "Effekte der US-Präsidentschaft Trump – Neuer Protektionismus," FIW Policy Brief series 037, FIW.
    9. HAYAKAWA Kazunobu & JINJI Naoto & MATSUURA Toshiyuki & YOSHIMI Taiyo, 2019. "Costs of Utilizing Regional Trade Agreements," Discussion papers 19054, Research Institute of Economy, Trade and Industry (RIETI).
    10. Lorenzo Caliendo & Robert C. Feenstra & John Romalis & Alan M. Taylor, 2015. "Tariff Reductions, Entry, and Welfare: Theory and Evidence for the Last Two Decades," NBER Working Papers 21768, National Bureau of Economic Research, Inc.
    11. Mao, Haiou & Görg, Holger, 2020. "Friends like this: The impact of the US–China trade war on global value chains," Open Access Publications from Kiel Institute for the World Economy 225992, Kiel Institute for the World Economy (IfW).
    12. Demidova, Svetlana, 2017. "Trade policies, firm heterogeneity, and variable markups," Journal of International Economics, Elsevier, vol. 108(C), pages 260-273.
    13. Nguyen, Ly & Kinnucan, Henry W., 2019. "The US solar panel anti-dumping duties versus uniform tariff," Energy Policy, Elsevier, vol. 127(C), pages 523-532.
    14. Haiou Mao & Holger Görg, 2020. "Friends like this: The impact of the US–China trade war on global value chains," The World Economy, Wiley Blackwell, vol. 43(7), pages 1776-1791, July.
    15. Kohler Wilhelm & Jung Benjamin, 2017. "Wie vorteilhaft ist internationaler Handel?: Ein neuer Ansatz zur Vermessung der Gewinne," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(1), pages 32-55, April.
    16. Takahide Aoyagi & Tadashi Ito & Toshiyuki Matsuura, 2021. "Welfare gains through globalization: Evidence from Japan's manufacturing sector," Working Papers e158, Tokyo Center for Economic Research.

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    More about this item

    Keywords

    Gravity equation; Monopolistic competition; Heterogeneous firms; International trade; Trade policy; Gains from trade;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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