Global Chains, Regional Pains: The Local Socio-Economic Effects of U.S. Tariffs

This paper investigates how recent and potential changes in U.S. trade policy affect regional economic performance, labor markets, and income inequality across Brazil, using an integrated global-subnational computable general equilibrium (CGE) framework. The analysis combines the Global Trade Analysis Project (GTAP) model with Brazil’s highly disaggregated subnational TERM (The Enormous Regional Model), providing a novel methodological approach to capture detailed spatial and sectoral impacts of international trade shocks. Empirical findings reveal substantial regional heterogeneity in economic outcomes, with pronounced vulnerabilities in the North and Northeast, contrasting milder effects or even gains in more diversified southern regions. Labor market responses were similarly uneven, characterized by heightened informality and concentrated losses in high-skill, trade-dependent occupations. Agriculture, particularly soybean production, emerges as a critical transmission channel, reflecting Brazil’s deep integration into China-led global value chains. Income and consumption impacts are regressive, disproportionately affecting lower-income households. These results underscore the importance of accounting for subnational heterogeneity and global value chain interactions when designing compensatory and adjustment policies. Effective policy interventions thus require spatially targeted mechanisms to mitigate adverse regional and distributional effects while leveraging strategic sectoral opportunities arising from trade realignments.