## Trade Partners’ Responses to US Tariffs

_IMF Working Papers, July 18, 2025_

## Source details

**Canonical URL:** [Trade Partners’ Responses to US Tariffs](https://www.imf.org/en/publications/wp/issues/2025/07/18/trade-partners-responses-to-us-tariffs-568632)

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## Bibliographic details
- Authors: Lorenzo Rotunno, Michele Ruta
- Published: July 18, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229017008.001

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### Overview and research question
- Recently announced and enacted US tariffs reduce partners’ access to the US market and lead to trade diversion.
- Impacted countries may respond in (at least) three ways:
  - imposing retaliatory tariffs on the US,
  - resorting to industrial policy (subsidies) to support their producers,
  - signing trade agreements to find new market access opportunities.
- The study relies on a quantitative trade model to analyze trade and welfare implications of these policy responses.

### Key findings
- Retaliation:
  - Hurts US exports.
  - Can improve the retaliating countries’ terms of trade.
  - Creates distortions in global trade.
- Subsidies / industrial policy:
  - Can expand exporters’ market shares, making up for lost markets in the US.
  - Are costly to implement.
  - Increase distortions, especially for the subsidizers.
  - Worsen trade diversion effects and could lead to new tariffs targeting subsidizers.
- Deeper integration / signing trade agreements:
  - Helps countries expand trade while reducing distortions.
  - Even in presence of US tariffs, real income for the liberalizing countries and the world is higher when partners choose to deepen integration as part of their policy strategy.

### Policy implications and scenarios analyzed
- Retaliatory tariffs: potential short-term improvement in terms of trade but higher global distortions and adverse effects on US exports.
- Subsidy-based industrial policy: may protect or expand domestic exporters but carries fiscal costs and raises the risk of escalation and further protectionist measures.
- Trade liberalization with other partners: a welfare-improving path that mitigates trade diversion and reduces distortions relative to retaliation or subsidy approaches.

### Methodology and scope
- Analysis based on a quantitative trade model (details in the Working Paper).
- Focus on trade and welfare implications across affected partners, the US, and global outcomes.

### Publication metadata
- Authors: Lorenzo Rotunno, Michele Ruta
- Date: July 18, 2025
- Series: IMF Working Papers
- Working Paper No.: 2025/147
- Volume: 2025
- Issue: 147
- Pages: 42
- DOI: https://doi.org/10.5089/9798229017008.001
- Stock No: WPIEA2025147
- ISBN: 9798229017008
- ISSN: 1018-5941

*Source: "Trade Partners’ Responses to US Tariffs", IMF Working Papers, Lorenzo Rotunno and Michele Ruta, July 18, 2025.*

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2025/07/18/trade-partners-responses-to-us-tariffs-568632_