Tariffs, Automation, and Business Dynamism

Can protectionism slow automation and revive business dynamism? We study this question in a dynamic open-economy model with heterogeneous firms, endogenous entry, exporter selection, and task-based production in which routine tasks can be performed by workers or robots. Import tariffs reallocate expenditure toward domestic producers, reshape entry and export incentives, and generate revenues rebated to households. In the baseline, a permanent tariff temporarily raises entry and expands domestic varieties, but reduces output per firm, trade volumes, and intermediate production at factor prices. It also lowers CPI-based marginal costs, making automation less attractive and persistently shifting production toward routine labor. Routine workers benefit from transfers, reduced training, and lower automation, while non-routine workers face wage compression and owners gain from domestic demand and aggregate profits. Aggregate welfare effects depend on automation, training, entry, and rebate incidence. Evidence from the 2018–2019 U.S. tariff episode supports the model’s task-reallocation and entry-timing mechanisms.