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The Design and Effect of Tariff Retaliation: Evidence from the European Union

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Abstract

We show that the EU's 2018 retaliation against US steel and aluminum tariffs targeted goods with low US import dependence and high substitutability. For the majority of tariffed goods, the US share of EU imports declined notably and remained below pre-2018 levels even after the retaliatory tariffs were lifted, reflecting asymmetric effects of tariffs on trade diversion. Moreover, although the retaliatory tariffs were instantly and fully passed through to EU importers, the retaliation did not lead to domestic price pressures as we find no evidence for inflationary effects on consumer and producer prices.

Suggested Citation

  • Ece Fisgin & Johannes Fleck & Keith Richards, 2026. "The Design and Effect of Tariff Retaliation: Evidence from the European Union," International Finance Discussion Papers 1436, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:102987
    DOI: 10.17016/IFDP.2026.1436
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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