The effect of import tariffs on exports

In 2018 and 2019, the United States imposed a series of wide-ranging increases in import tariffs: by August of 2019, 12 percent of US imports were subject to an average tariff increase of 24 percentage points. The cost of tariff exposure was nontrivial for the average firm in the US economy: the implied duties paid per year were about $900 per worker.

Analysts frequently focus on the impact of import tariffs on consumer prices. However, in a world where value-chains become more and more complex (and global), one should also examine the impact of import tariffs on exports.

A first channel of this effect is given by retaliatory tariffs. For example, if China raises import duties on product y as a response to the US increasing import duties on product x, then product y exports suffer from the product x import tariff surge. But there is more: to the extent that many import tariffs fall on intermediate products, American exporters that use product x as an input are also negatively affected. In fact, the 2018-2019 US tariff increases were disproportionately applied to intermediate goods that are typically inputs in production. 

A recent paper estimates and quantifies the supply chain spillovers of the 2018-2019 US import tariff increases. The following figure (Figure 2 in the paper) provides a preliminary answer. The blue line measures export rates; the dashed line corresponds to the 2015-2017 pre-trade war period of these export rates; and the vertical red lines represent the different tariff waves. 

As can be seen, even controlling for seasonality and for retaliatory tariffs, export rates declined during and following the 2018-2019 tariff hike period, whereas before they were relatively stable. 

In order to get a more precise measure of this effect — and in order to establish that it’s an effect, not just a correlation — the authors make use of very detailed micro data at the product-country level. This allows them to construct measures of indirect exposure to tariffs via nonexporter firms that import tariffed products. 

The authors conclude that import tariff exposure depressed US exports at the country-product level in 2018 and especially in 2019. For example, where exposure is 1 standard deviation above the mean, the indirect effect is equivalent to an ad valorem equivalent tariff of 4 percent. This is close to the average statutory most-favored-nation (MFN) tariff rates imposed on trade partners by the United States and European Union. 

In sum, in addition to retaliatory rates, the indirect effect of import tariffs on exports may be considerable.

Kyle Handley, Fariha Kamal, Ryan Monarch

Rising Import Tariffs, Falling Exports: When Modern Supply Chains Meet Old-Style Protectionism

American Economic Journal: Applied Economics, vol. 17, no. 1, January 2025 (pp. 208–38)