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To what extent are tariffs offset by exchange rates?

Author

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  • Jeanne, Olivier
  • Son, Jeongwon

Abstract

In theory, tariffs should be partially offset by a currency appreciation in the tariff-imposing country or by a depreciation in the country on which the tariff is imposed. We find, based on a calibrated model, that the tariffs imposed in the 2018-19 US-China tariff war should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. We find that tariff news explained at most one fifth of the dollar effective appreciation but around two thirds of the renminbi effective depreciation observed in 2018-19.

Suggested Citation

  • Jeanne, Olivier & Son, Jeongwon, 2024. "To what extent are tariffs offset by exchange rates?," Journal of International Money and Finance, Elsevier, vol. 142(C).
    • Handle: RePEc:eee:jimfin:v:142:y:2024:i:c:s0261560624000020
    DOI: 10.1016/j.jimonfin.2024.103015
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    More about this item

    Keywords

    Exchange rates; Tariffs; Dollar; Renminbi;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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