When Consumers See It Coming: How Anticipation Affects the Domestic Cost of Tariffs

Tariffs implemented by President Trump in 2018 were unexpected and significant, incurring large costs to U.S. consumers. This study examines the effect of tariff anticipation on price, quantity, and value effect on imports in the United States. Specifically, it focuses on tariffs implemented during Obama’s second term in office from 2012 to 2016 on the automotive, technology, and manufacturing industries. The findings present a significant divergence from the literature on the effects of 2018 tariffs, finding a near full pass-through of tariffs to foreign exporter prices rather than U.S. consumers. Specifically, a one percent increase in tariffs resulted in a drop in consumer prices, quantities, and values. Additionally, this study found that anticipation at the six-month, but not three-month, level significantly mitigated tariff short-term effects on consumers, suggesting consumers preemptively build inventories to shield themselves from anticipated higher prices. This study reveals that selected tariffs from 2012 to 2015 generated a consumer deadweight loss of $327 million but produced a net national benefit of $8.2 billion for the U.S., indicating these tariffs’ short-term benefit. Further, I find that when consumers anticipate tariffs, the total cost to consumers is diminished.