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What Determines State Heterogeneity in Response to U.S. Tariff Changes

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Abstract

We develop a structural framework to identify the sources of cross-state heterogeneity in response to U.S. tariff changes. We quantify the effects of unilaterally increasing U.S. tariffs by 25 percentage points across sectors. Welfare changes range from –0.8 percent in Oregon to 2.1 percent in Montana. States gain more when their sectoral comparative advantage covaries negatively with that of the aggregate U.S. Consequently, “preferred” changes in tariffs vary systematically across states, indicating the importance of transfers in aligning state preferences over trade policy. Foreign retaliation substantially reduces the gains across states while perpetuating the cross-state variation.

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  • Ana Maria Santacreu & Michael Sposi & Jing Zhang, 2023. "What Determines State Heterogeneity in Response to U.S. Tariff Changes," Working Paper Series WP 2023-09, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:95977
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    1. Daniel Carroll & Sewon Hur, 2023. "On The Distributional Effects Of International Tariffs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1311-1346, November.
    2. Céline Poilly & Fabien Tripier, 2023. "Regional Trade Policy Uncertainty," AMSE Working Papers 2321, Aix-Marseille School of Economics, France.

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    More about this item

    Keywords

    Interstate trade; Gains from Trade; Customs Union;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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