IDEAS home Printed from https://ideas.repec.org/p/cep/cepdps/dp2195.html

Tariff confusion

Author

Listed:
  • Kalina Manova
  • Dennis Novy
  • Thomas Sampson
  • Aaron Tang

Abstract

US trade policy in 2025 was unprecedented in the frequency, complexity and volatility of tariff announcements. This paper presents evidence that the resulting policy environment reduced trade flows because of confusion over current tariff levels. We build a new US Tariff Announcement Database for 2025 from US presidential executive orders and proclamations. For each origin country, product and month, we calculate US statutory tariffs and propose novel indicators of tariff confusion: the number of relevant announcements, the number of possible tariff calculations arising, and bounds on possible tariff miscalculation. We show that both tariff increases and tariff confusion reduced US imports during 2025, with confusion more than doubling the impact of tariffs. Moreover, tariff confusion was (i) persistent, and more damaging at higher tariff levels; (ii) mediated through lower import quantities, with little effect on import prices; and (iii) less detrimental for relationship-specific goods and origin countries with stronger trust in foreigners. Our results highlight previously unexplored consequences of the manner in which trade policy changes are implemented.

Suggested Citation

  • Kalina Manova & Dennis Novy & Thomas Sampson & Aaron Tang, 2026. "Tariff confusion," CEP Discussion Papers dp2195, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp2195
    as

    Download full text from publisher

    File URL: https://cep.lse.ac.uk/pubs/download/dp2195.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 69(1), pages 99-118.
    2. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters, in: Victor J. Tremblay & Elizabeth Schroeder & Carol Horton Tremblay (ed.), Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74, Edward Elgar Publishing.
    3. Ignatenko, Anna & Lashkaripour, Ahmad & Macedoni, Luca & Simonovska, Ina, 2025. "Making America great again? The economic impacts of Liberation Day tariffs," Journal of International Economics, Elsevier, vol. 157(C).
    4. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 569-600.
    5. Susan E. Woodward & Robert E. Hall, 2012. "Diagnosing Consumer Confusion and Sub-optimal Shopping Effort: Theory and Mortgage-Market Evidence," American Economic Review, American Economic Association, vol. 102(7), pages 3249-3276, December.
    6. Dennis Novy & Alan M. Taylor, 2020. "Trade and Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 749-765, October.
    7. Handley, Kyle, 2014. "Exporting under trade policy uncertainty: Theory and evidence," Journal of International Economics, Elsevier, vol. 94(1), pages 50-66.
    8. Bonadio, Barthélémy & Huo, Zhen & Kang, Elliot & Levchenko, Andrei A. & Pandalai-Nayar, Nitya & Toma, Hiroshi & Topalova, Petia, 2026. "Playing with blocs: Quantifying decoupling," Journal of International Economics, Elsevier, vol. 163(C).
    9. Mary Amiti & Stephen J. Redding & David E. Weinstein, 2019. "The Impact of the 2018 Tariffs on Prices and Welfare," Journal of Economic Perspectives, American Economic Association, vol. 33(4), pages 187-210, Fall.
    10. Kalina Manova & Andreas Moxnes & Oscar Perello, 2025. "Productivity, matchability and intermediation in production networks," CEP Discussion Papers dp2082, Centre for Economic Performance, LSE.
    11. Justin R. Pierce & Peter K. Schott, 2016. "The Surprisingly Swift Decline of US Manufacturing Employment," American Economic Review, American Economic Association, vol. 106(7), pages 1632-1662, July.
    12. Manova, Kalina & Moxnes, Andreas & Perelló, Oscar, 2025. "Productivity, Matchability and Intermediation in Production Networks," CEPR Discussion Papers 20044, Centre for Economic Policy Research.
    13. Gita Gopinath & Brent Neiman, 2026. "The Incidence of Tariffs: Rates and Reality," NBER Working Papers 34620, National Bureau of Economic Research, Inc.
    14. Peter K. Schott, 2008. "The relative sophistication of Chinese exports [‘Manufacturing Earnings and Compensation in China’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 23(53), pages 6-49.
    15. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    16. Pablo D Fajgelbaum & Pinelopi K Goldberg & Patrick J Kennedy & Amit K Khandelwal, 2020. "The Return to Protectionism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 1-55.
    17. Gopinath, Gita & Gourinchas, Pierre-Olivier & Presbitero, Andrea F. & Topalova, Petia, 2025. "Changing global linkages: A new Cold War?," Journal of International Economics, Elsevier, vol. 153(C).
    18. Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages 427-452, March.
    19. Kyle Handley & Nuno Limão, 2022. "Trade Policy Uncertainty," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 363-395, August.
    20. Freund, Caroline & Mattoo, Aaditya & Mulabdic, Alen & Ruta, Michele, 2024. "Is US trade policy reshaping global supply chains?," Journal of International Economics, Elsevier, vol. 152(C).
    21. ,, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
    22. Gianluca Benigno & Jan J. J. Groen, 2020. "Uncertainty about Trade Policy Uncertainty," Staff Reports 919, Federal Reserve Bank of New York.
    23. Kyle Handley & Nuno Limão, 2018. "Policy Uncertainty, Trade, and Welfare: Theory and Evidence for China and the United States," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 5, pages 123-175, World Scientific Publishing Co. Pte. Ltd..
    24. Laura Alfaro & Davin Chor, 2025. "An Anatomy of the Great Reallocation in US Supply Chain Trade," NBER Working Papers 34490, National Bureau of Economic Research, Inc.
    25. Justin R. Pierce & Peter K. Schott, 2009. "A Concordance Between Ten-Digit U.S. Harmonized System Codes and SIC/NAICS Product Classes and Industries," NBER Working Papers 15548, National Bureau of Economic Research, Inc.
    26. repec:bla:ecpoli:v:23:y:2008:i::p:5-49 is not listed on IDEAS
    27. Alberto Cavallo & Gita Gopinath & Brent Neiman & Jenny Tang, 2021. "Tariff Pass-Through at the Border and at the Store: Evidence from US Trade Policy," American Economic Review: Insights, American Economic Association, vol. 3(1), pages 19-34, March.
    28. Kyle Handley & Nuno Limão, 2018. "Trade and Investment under Policy Uncertainty: Theory and Firm Evidence," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 4, pages 89-122, World Scientific Publishing Co. Pte. Ltd..
    29. Glenn Ellison & Alexander Wolitzky, 2012. "A search cost model of obfuscation," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 417-441, September.
    30. Andrés Rodríguez-Clare & Mauricio Ulate & Jose P. Vasquez, 2025. "The 2025 Trade War: Dynamic Impacts Across U.S. States and the Global Economy," NBER Working Papers 33792, National Bureau of Economic Research, Inc.
    31. Stéphane Auray & Michael B. Devereux & Aurélien Eyquem, 2025. "Tariffs and Retaliation: A Brief Macroeconomic Analysis," NBER Working Papers 33739, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gustavo de Souza & Haishi Li & Ziho Park & Yulin Wang, 2025. "Trade Policy Uncertainty and Supply Chain Disruptions: Firm-Level Evidence from "Liberation Day"," CESifo Working Paper Series 12285, CESifo.
    2. Ossa, Ralph & Redding, Stephen, 2026. "The Economics of Tariffs," CEPR Discussion Papers 21221, Centre for Economic Policy Research.
    3. Gao, Xin & Kong, Shuo & Liu, Yaowen, 2025. "External shock and diversified landscape of China’s product export," Economic Analysis and Policy, Elsevier, vol. 88(C), pages 80-108.
    4. Haoyuan Ding & Bo Pu & Tong Qi & Kai Wang, 2022. "Valuation effects of the US–China trade war: The effects of foreign managers and foreign exposure," Journal of Economic Surveys, Wiley Blackwell, vol. 36(3), pages 662-683, July.
    5. Besedes, Tibor & Kohl, Tristan & Lake, James, 2020. "Phase out tariffs, phase in trade?," Journal of International Economics, Elsevier, vol. 127(C).
    6. Benguria, Felipe & Choi, Jaerim & Swenson, Deborah L. & Xu, Mingzhi (Jimmy), 2022. "Anxiety or pain? The impact of tariffs and uncertainty on Chinese firms in the trade war," Journal of International Economics, Elsevier, vol. 137(C).
    7. Salah Uddin & Javed Iqbal & Mark Wohar, 2026. "Strategic insights into export diversification in Pakistan under trade policy uncertainty," Economic Change and Restructuring, Springer, vol. 59(3), pages 1-46, June.
    8. Gnangnon, Sèna Kimm, 2022. "Duration of WTO Membership and Investment-Oriented Remittances Flows," EconStor Preprints 251274, ZBW - Leibniz Information Centre for Economics.
    9. Jun Du & Oleksandr Shepotylo & Xiaocan Yuan, 2025. "How did the Brexit uncertainty impact services exports of UK firms?," Journal of International Business Policy, Palgrave Macmillan, vol. 8(1), pages 80-104, March.
    10. Ruohan Wu & Mario J. Miranda, 2023. "Dynamic impacts of intermittent trade conflicts," The World Economy, Wiley Blackwell, vol. 46(3), pages 681-701, March.
    11. Zhen Xu & Xin Zhong & Zhongyan Zhang, 2022. "Does the Sino–US Trade Friction Promote Firm Innovation? The Role of the Export Grab Effect," Sustainability, MDPI, vol. 14(5), pages 1-20, February.
    12. Faber, Marius & Kilic, Kemal & Kozliakov, Gleb & Marin, Dalia, 2025. "Global value chains in a world of uncertainty and automation," Journal of International Economics, Elsevier, vol. 155(C).
    13. Alessandria, George & Khan, Shafaat Yar & Khederlarian, Armen, 2024. "Taking stock of trade policy uncertainty: Evidence from China’s pre-WTO accession," Journal of International Economics, Elsevier, vol. 150(C).
    14. Mukunoki,Hiroshi, 2025. "A Theoretical Perspective on the Economic Effects of U.S.–China Trade Disputes," IDE Discussion Papers 953, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    15. Che, Yi & Lu, Yi & Pierce, Justin R. & Schott, Peter K. & Tao, Zhigang, 2022. "Did trade liberalization with China influence US elections?," Journal of International Economics, Elsevier, vol. 139(C).
    16. Liu, Mengxun & Lin, Faqin & Feng, Fan & Xiong, Guang, 2025. "Sino-US trade friction and the firm value: Evidence from listed firms in China," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 978-987.
    17. Ando,Mitsuyo & Hayakawa,Kazunobu & Kimura,Fukunari & Mukunoki,Hiroshi, 2025. "Friend- and Near-Shoring in Factories America, Asia, and Europe amid Rising Geopolitical Tensions," IDE Discussion Papers 973, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    18. Gnangnon, Sèna Kimm, 2023. "Duration of membership in the world trade organization and investment-oriented remittances inflows," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 258-277.
    19. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    20. Matthieu Crozet & Banu Demir & Beata Javorcik, 2022. "International Trade and Letters of Credit: A Double-Edged Sword in Times of Crises," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(2), pages 185-211, June.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp2195. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://cep.lse.ac.uk/_new/publications/discussion-papers/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.