Evaluating Tariff Shock Propagation in an Integrated Demand System-MRIO Framework

This paper introduces a framework that integrates Quadratic Almost Ideal Demand System (QUAIDS) elasticities with the ADB Multi-Region Input-Output (MRIO) database to evaluate the direct and indirect impacts of tariffs on Value Added at the country-sector level. Using the data on USA tariffs imposed in September 2025, results reveal a broad-based contraction in global value added by –0.52 percent, with indirect effects roughly twice as large as direct ones. While, direct effects are concentrated in traded manufacturing sectors such as textiles, chemicals, and machinery, the majority of total losses arise from indirect spillovers into services and infrastructure, including transport, telecommunications, finance, and public spending. Losses are widespread, where more than 90 percent of countries experience declines, with South Asia and North America the most affected, while Europe and East Asia show greater resilience. India (–5.8 percent) and the United States (–3.2 percent) face strong contractions, while China’s large domestic market cushions much of the shock. These findings highlight the systemic nature of tariff shocks and their asymmetric propagation across countries and sectors that factors in structural dependence across the global economy. By embedding non-linear demand responses within a structural MRIO framework, the study provides a transparent, policy-relevant tool for evaluating shocks to global production networks.