A Quantitative Analysis of Tariffs across U.S. States

We build a multisector general equilibrium model of trade to quantify the effect of U.S. tariffs both at the national and global level. The model incorporates region-specific input-output linkages, endogenous capital accumulation and endogenous trade imbalances. We estimate sector-specific bilateral trade frictions and productivity levels for 50 U.S. states and 41 non-U.S. countries across 2 sectors of the economy using detailed bilateral trade and production data. We then simulate welfare Laffer curves for each state by varying the U.S. tariff rate. We consider two cases: (i) No retaliation from the foreign countries and (ii) Tit-for-Tat retaliation. We find that the tariff rate that maximizes consumption varies across states and it ranges from 14% to 45% when there is no retaliation and from 0% to 13% when there is retaliation. Furthermore, we find that these tariffs correlate negatively with the ratio of foreign exports to GDP.