## Tariffs Do More Harm Than Good at Home

_IMF Blog, September 8, 2016_

## Source details

**Canonical URL:** [Tariffs Do More Harm Than Good at Home](https://www.imf.org/en/blogs/articles/2016/09/08/tariffs-do-more-harm-than-good-at-home)

## Other formats

- [Markdown version](/en/blogs/articles/2016/09/08/tariffs-do-more-harm-than-good-at-home/index.md)
- [Structured JSON version](/en/blogs/articles/2016/09/08/tariffs-do-more-harm-than-good-at-home/index.json)
- [Bundle manifest](/en/blogs/articles/2016/09/08/tariffs-do-more-harm-than-good-at-home/bundle-manifest.json)

## Bibliographic details
- Authors: Maurice Obstfeld
- Published: September 8, 2016

---

### Overview and context
- Author: Maurice Obstfeld
- Publication date: September 8, 2016
- Central question: Unilateral import tariffs intended to offset perceived foreign price advantages can harm the imposing country’s economy, even absent retaliation.

### Mechanisms and channels
- WTO context:
  - The World Trade Organization’s Agreement on Subsidies and Countervailing Measures allows unilateral countervailing duties on imports of subsidized goods.
  - Policies that are not strict WTO-defined subsidies (e.g., currency undervaluation) can produce similar downward pressure on export prices.
- Mundell’s insight:
  - Robert Mundell identified that a tariff can improve the importer’s underlying balance-of-payments position, causing the domestic currency to strengthen and potentially reducing GDP and employment.
  - The contractionary impact is harsher when the home country’s central bank policy interest rate is at or near zero, because monetary policy is more constrained.
- General equilibrium effects:
  - Tariffs shift demand toward domestically produced goods and raise prices of competing imports, but can lead to currency appreciation that offsets and potentially reverses expected gains in output and employment.
  - Tariffs can “subsidize most imports and tax all exports,” thereby hurting the trade balance, output, and employment.

### Quantitative experiment and scenarios
- Model used: IMF’s Global Integrated Monetary and Fiscal model (multi-region, dynamic).
- Policy shock modeled: United States levies a 20 percent tariff on imports from emerging East Asia.
- Key assumptions:
  - The Federal Reserve policy interest rate is at zero.
  - Emerging East Asia’s policy interest rate is not at zero.
- Two scenarios illustrated:
  - No retaliation by emerging East Asia (green line in charts).
  - Retaliation by emerging East Asia with its own tariff on U.S. imports (red line in charts).
- Model outcomes (U.S. variables highlighted):
  - Under either scenario, real GDP declines.
  - The dollar appreciates (is worth more); with retaliation the dollar appreciates by less, but U.S. GDP falls by far more.
  - Real investment falls due to lower activity and higher prices of East Asian intermediate imports used in investment goods.
  - Exports initially fall by more than imports; importers switch to other countries, and dollar appreciation makes alternative imports cheaper, reinforcing the switch and weighing on U.S. exports.

### Distributional effects and who gains or loses
- Gains:
  - Domestic consumers may see higher real consumption because the tariff, if not met with retaliation and given U.S. size, raises prices of U.S. exports relative to imports.
  - Producers serving the domestic market who compete directly with emerging East Asia are likely to gain.
- Losses:
  - Exporters and most other import-competing industries lose.
  - Export jobs lost tend to be relatively high paying in the United States.
  - With retaliation, the outcome is worse and “everyone loses.”

### Policy implications and recommendations
- Unilateral punitive tariffs:
  - Can be emotionally or politically gratifying and may temporarily boost specific industries.
  - Open the door to industry lobbying based on criteria less objective than measurable financial subsidies.
  - May provoke retaliatory tariffs and mutually destructive trade wars.
- Suggested caution:
  - Policies aimed at attaining artificial export advantages are legitimate topics for international consultation and peer pressure.
  - Those advocating unilateral punitive tariffs should think carefully because such policies can cause wider economic damage at home, even if retaliation does not occur.

*Tariffs Do More Harm Than Good at Home — Maurice Obstfeld, September 8, 2016*

---

## Content in this bundle

- **关税对本国的影响弊大于利；莫里斯·奥伯斯费尔德，iMFdirect；2016年9月8日**
  - [关税对本国的影响弊大于利；莫里斯·奥伯斯费尔德，iMFdirect；2016年9月8日 (Markdown version)](/external/chinese/np/blog/2016/090816c.pdf.md){rel="alternate" type="text/markdown"}
  - [关税对本国的影响弊大于利；莫里斯·奥伯斯费尔德，iMFdirect；2016年9月8日 (PDF)](/external/chinese/np/blog/2016/090816c.pdf){rel="external" type="application/pdf"}
- **関税賦課の自国への利害、害の方が大, モーリス・オブストフェルド, iMFdirect, 2016年9月8日**
  - [関税賦課の自国への利害、害の方が大, モーリス・オブストフェルド, iMFdirect, 2016年9月8日 (Markdown version)](/external/japanese/np/blog/2016/090816j.pdf.md){rel="alternate" type="text/markdown"}
  - [関税賦課の自国への利害、害の方が大, モーリス・オブストフェルド, iMFdirect, 2016年9月8日 (PDF)](/external/japanese/np/blog/2016/090816j.pdf){rel="external" type="application/pdf"}
- **Wp1355**
  - [Wp1355 (Markdown version)](/external/pubs/ft/wp/2013/wp1355.pdf.md){rel="alternate" type="text/markdown"}
  - [Wp1355 (PDF)](/external/pubs/ft/wp/2013/wp1355.pdf){rel="external" type="application/pdf"}
- **От тарифов стране-импортеру больше вреда, чем пользы; Морис Обстфельд; 8 сентября 2016 года**
  - [От тарифов стране-импортеру больше вреда, чем пользы; Морис Обстфельд; 8 сентября 2016 года (Markdown version)](/external/russian/np/blog/2016/090816r.pdf.md){rel="alternate" type="text/markdown"}
  - [От тарифов стране-импортеру больше вреда, чем пользы; Морис Обстфельд; 8 сентября 2016 года (PDF)](/external/russian/np/blog/2016/090816r.pdf){rel="external" type="application/pdf"}

---

## References

- [عربي](http://blog-montada.imf.org/?p=4475)
- [https://www.imf.org/wp-content/uploads/2016/09/obtsfeld-tariffs-chart1.jpg](https://www.imf.org/wp-content/uploads/2016/09/obtsfeld-tariffs-chart1.jpg)
- [https://www.imf.org/wp-content/uploads/2016/09/obtsfeld-tariffs-chart2.jpg](https://www.imf.org/wp-content/uploads/2016/09/obtsfeld-tariffs-chart2.jpg)

_Source: https://www.imf.org/en/blogs/articles/2016/09/08/tariffs-do-more-harm-than-good-at-home_