Tariff: The Most Beautiful Word in the Dictionary?

ABSTRACT We consider the welfare impacts of US tariff policy at levels proposed by President Donald J. Trump. General‐equilibrium simulations under a widely used transparent one‐sector trade model reveal sizable US welfare losses. When we extend the model to include bilateral firm selection and high resolution input–output linkages, the US losses escalate. We adopt a theory‐with‐numbers method to perform comparative static simulations over President Trump's stated tariff goals and consider retaliatory responses. Unified symmetric global retaliation to US protection, at the level of Trump's proposal, places 270% of the global efficiency loss on the US, leading to gains for all other regions except Canada. Our new results are dependent on both our incorporation of data (beyond trade flows and trade elasticities) and our structural extensions to consider bilateral selection of firms. We provide a foundation for our results in a computational analysis of optimal tariffs.