Estimating the Impacts of Tariff Changes: Two Illustrative Scenarios

We build upon new developments in the international trade literature to construct a quantitative Ricardian framework similar to Caliendo and Parro (2015) to isolate and estimate the long-run economic impacts of tariff changes. Our framework incorporates the most recent data and shows that the trade elasticities have changed considerably since the 1990s—highlighting the need to use recent data to quantitatively evaluate newly imposed and proposed tariff schedules. We apply our model and use our estimated elasticities to measure the long-run economic impact of the recently announced US tariffs on steel and aluminum and the first round of additional tariffs between the United States and China. Our results suggest that modifying the current global tariff schedules would imply considerable changes in trade flows and sectoral reallocations, but modest impacts on longrun output levels.