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Tariffs Passing Through Retailers: Do Tariffs Actually Protect Domestic Manufacturers?

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  • Matthew T. Cole
  • Carsten Eckel

Abstract

Historically, tariffs have been an attractive policy tool to protect domestic industries. The benefits of such a policy are based on theoretical models that assume foreign manufacturers sell directly to consumers. However, recent empirical evidence suggests that wholesalers and retailers play an active role in international trade. We present a model of retailers that illustrates how accounting for these strategic intermediaries can actually make some domestic manufacturers worse off in response to an increased tariff. Moreover, any production gains that occur are biased towards higher cost domestic manufacturers. This result is not driven by the cannibalization effect of the multiproduct firm literature rather it is the fact that retailers compete over the marginal consumer (the extensive margin).

Suggested Citation

  • Matthew T. Cole & Carsten Eckel, 2014. "Tariffs Passing Through Retailers: Do Tariffs Actually Protect Domestic Manufacturers?," CESifo Working Paper Series 4735, CESifo.
  • Handle: RePEc:ces:ceswps:_4735
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    References listed on IDEAS

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    1. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
    2. Eike Berner & Laura Birg & Dominik Boddin, 2017. "Retailers and Consumers: The Pass-through of Import Price Changes," The World Economy, Wiley Blackwell, vol. 40(7), pages 1314-1344, July.
    3. Raff, Horst & Schmitt, Nicolas, 2009. "Imports, pass-through, and the structure of retail markets," Kiel Working Papers 1556, Kiel Institute for the World Economy (IfW).
    4. Rabah Amir & Jim Y. Jin & Gerald Pech & Michael Tröge, 2016. "Prices and Deadweight Loss in Multiproduct Monopoly," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(3), pages 346-362, June.
    5. Hellerstein, Rebecca, 2008. "Who bears the cost of a change in the exchange rate? Pass-through accounting for the case of beer," Journal of International Economics, Elsevier, vol. 76(1), pages 14-32, September.
    6. Bernardo S. Blum & Sebastian Claro & Ignatius Horstmann, 2010. "Facts and Figures on Intermediated Trade," American Economic Review, American Economic Association, vol. 100(2), pages 419-423, May.
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    Cited by:

    1. Raff, Horst & Schmitt, Nicolas, 2015. "Retailing and international trade: A survey of the literature," Economics Working Papers 2015-02, Christian-Albrechts-University of Kiel, Department of Economics.

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    More about this item

    Keywords

    tariffs; retailing; pass-through; protection;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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