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Trade Policy and Structural Change

Author

Listed:
  • Hayato Kato
  • Kensuke Suzuki
  • Motoaki Takahashi

Abstract

We examine how tariffs affect sectoral composition and welfare in an economy with nonhomothetic preferences and sectors being complements -- key drivers of structural change. Beyond their conventional role in trade protection, tariffs influence industrial structure by altering relative prices and income levels. We qualitatively characterize these mechanisms and use a quantitative dynamic model to show that a counterfactual 20-percentage-point increase in U.S. manufacturing tariffs since 2001 would have raised the manufacturing value-added share by one percentage point and increased welfare by 0.36 percent. However, if all the U.S. trading partners responded reciprocally, U.S. welfare would have declined by 0.12 percent.

Suggested Citation

  • Hayato Kato & Kensuke Suzuki & Motoaki Takahashi, 2025. "Trade Policy and Structural Change," Papers 2508.01360, arXiv.org, revised Aug 2025.
    • Handle: RePEc:arx:papers:2508.01360
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    File URL: http://arxiv.org/pdf/2508.01360
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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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