IMF Working Papers

The Macroeconomic Effects of Trade Tariffs: Revisiting the Lerner Symmetry Result

By Jesper Lindé, Andrea Pescatori

July 7, 2017

Download PDF

Preview Citation

Format: Chicago

Jesper Lindé, and Andrea Pescatori. The Macroeconomic Effects of Trade Tariffs: Revisiting the Lerner Symmetry Result, (USA: International Monetary Fund, 2017) accessed October 11, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We study the robustness of the Lerner symmetry result in an open economy New Keynesian model with price rigidities. While the Lerner symmetry result of no real effects of a combined import tariff and export subsidy holds up approximately for a number of alternative assumptions, we obtain quantitatively important long-term deviations under complete international asset markets. Direct pass-through of tariffs and subsidies to prices and slow exchange rate adjustment can also generate significant short-term deviations from Lerner. Finally, we quantify the macroeconomic costs of a trade war and find that they can be substantial, with permanently lower income and trade volumes. However, a fully symmetric retaliation to a unilaterally imposed border adjustment tax can prevent any real or nominal effects.

Subject: Exchange rates, Export subsidies, Foreign exchange, Imports, International trade, Real exchange rates, Tariffs, Taxes

Keywords: Border Adjustment Tax, Complete Markets, Exchange rate appreciation, Exchange rates, Export Subsidies, Global, Home economy, Home import, Import price net, Import sector, Import tariff, Import tariff hike, Import Tariffs, Imports, Incomplete Markets, Lerner Condition, New Keynesian open-economy model, PCP export price, Price distortion, Real exchange rates, Steady state import share, Tariff case, Tariffs, Trade share, Trade War, WP

Publication Details

  • Pages:

    54

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2017/151

  • Stock No:

    WPIEA2017151

  • ISBN:

    9781484306116

  • ISSN:

    1018-5941