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Fiscal Limits to Protectionism: The 2025 U.S.Tariff Laffer Curve

Author

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  • Pau S. Pujolas
  • Jack Rossbach

Abstract

We quantify the Tariff Laffer Curve for the U.S. using a multi-sector Ricardian model calibrated to the 2025 US trade war. We find revenue-maximizing tariffs of 20–30 percent and welfare-maximizing rates of 0–10 percent. We define the Marginal Fiscal Efficiency Index to partition tariffs into welfare-improving, trade-off, and revenue-decreasing regions. Expanding the trade war to more partners raises peak revenue even under retaliation, whereas coordinated retaliation sharply erodes welfare. By January 2026, 20 percent of U.S. tariffs exceed their Laffer peaks. Inverse-optimum estimation reveals diminished U.S. concern for foreign welfare, punitive treatment of China, and rising revenue motives.

Suggested Citation

  • Pau S. Pujolas & Jack Rossbach, 2026. "Fiscal Limits to Protectionism: The 2025 U.S.Tariff Laffer Curve," Department of Economics Working Papers 2026-01, McMaster University.
    • Handle: RePEc:mcm:deptwp:2026-01
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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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