Trump Administration on Tariffs - Dictionary of Arguments

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Tariffs: Tariffs are taxes imposed by a government on imported goods. They are used to raise revenue or protect domestic industries by making foreign products more expensive. Tariffs can influence trade balances, consumer prices, and international relations. While they may benefit local producers, they often lead to higher prices for consumers and potential retaliation from trading partners. See also International relations, Taxation, International trade. _____________ Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

> Trump Administration	> Tariffs	Trump Administration on Tariffs - Dictionary of Arguments Benguria I 1 Currency Appreciation/depreciation/tariffs/Benguria/Saffie: We find* that a one percentage point higher tariff is associated with a statistically significant 0.23%decline in stock prices. Further, we find no evidence of a dollar appreciation; if anything, higher tariffs are associated with a dollar depreciation, driven by countries with a floating regime. We show this is consistent with a model that allows for trade reallocation and in which exports to the US are invoiced in dollars while exports to the rest of the world are partly invoiced in producer currency. Benguria I 2 Across several specifications with various controls, we find a bilateral depreciation of the dollar. This is driven by countries with a floating exchange rate regime, and is statistically significant only in some of our regressions. This goes against what we would expect from existing theory, which indicates that US tariffs would reduce demand for foreign currencies, leading to a dollar appreciation. If US imports are invoiced in US dollars, we would expect no or small response in the exchange rate. We find that these results are robust to including in our regressions a component capturing the product exclusions in the tariff announcement. >Currency, >Share prices, >Stock prices, >Elasticity. Benguria I 1 Stock prices/tariffs/Benguria/Saffie: We find* that a one percentage point higher tariff is associated with a statistically significant 0.23%decline in stock prices. Further, we find no evidence of a dollar appreciation; if anything, higher tariffs are associated with a dollar depreciation, driven by countries with a floating regime. We show this is consistent with a model that allows for trade reallocation and in which exports to the US are invoiced in dollars while exports to the rest of the world are partly invoiced in producer currency. Benguria I 3 There is (…) recent work that focuses on the link between trade policy and stock prices, in the context of the US-China trade war [Amiti et al.⁽¹⁾, 2024, Huang et al., 2023]⁽²⁾ (…). >International trade, >Trade policy, >Trade wars. * Felipe Benguria Felipe Saffie. (2025) Rounding up the Effect of Tariffs on Financial Markets: Evidence from April 2, 2025. NBER Working Paper 34036 http://www.nber.org/papers/ 1050. Cambridge, MA 02138 July 2025 1. M. Amiti, M. Gomez, S. H. Kong, and D. E. Weinstein. Trade protection, stock-market returns, and welfare. NBER Working Paper No. 28758, 2024. 2. Y. Huang, C. Lin, S. Liu, and H. Tang. Trade networks and firm value: Evidence from the US-China trade war. Journal of International Economics, 145:103811, 2023. - - - Benguria I 13 Tariffs/currency depreciation/Benguria/Saffie: In the standard model of trade and exchange rates, a US tariff would reduce demand for foreign currencies, leading to a dollar appreciation. We develop a simple model* which departs from the standard model by changing its assumptions about invoicing currencies and about trade reallocation in response to tariffs. In both regards, our assumptions are guided by well-established empirical facts. This simple variation delivers the opposite result: a US tariff leads to a dollar depreciation. The assumption about invoicing patterns is the following. Exports to the US are invoiced in US dollars. Exports to the rest of the world are invoiced partly in dollars and partly in the currency of the exporting country (producer currency, using the terminology in the literature). This assumption is consistent with the evidence in the literature on invoice currencies in trade [Boz et al., 2022⁽¹⁾, Gopinath and Rigobon, 2008⁽²⁾]. Benguria I 14 The assumption about export reallocation is that US tariffs lead to a decline in exports to the US but an increase in exports to the rest of the world. This reallocation can be microfounded by assuming an increasing marginal cost. This mechanism is featured in Benguria and Saffie [2024]⁽³⁾ and Almunia et al. [2021](4). Further, Benguria and Saffie [2024]⁽³⁾ show that in there is a substantial amount of trade reallocation in response to trade war tariffs. Combining both assumptions, a tariff imposed by the US on a given country leads to a decrease in exports to the US and an increase in exports to the rest of the world. Because only exports to the rest of the world are invoiced in producer currency, this leads to a higher relative demand for producer currency. This implies an appreciation of the producer currency (i.e., a depreciation of the US dollar). We now provide a mathematical overview. In Appendix Section A.4, we provide the microfoundations for this model by assuming an increasing marginal cost. For this purpose, we extend the model in Benguria and Saffie [2024]⁽³⁾ by including assumptions about invoice currencies. Benguria I 15 Stock prices: This model also predicts a decline in stock prices in response to a US tariff. >US Import tariffs. Felipe Benguria Felipe Saffie. (2025). Rounding up the Effect of Tariffs on Financial Markets: Evidence from April 2, 2025. NBER Working Paper 34036 http://www.nber.org/papers/ 1050. 1. E. Boz, C. Casas, G. Georgiadis, G. Gopinath, H. Le Mezo, A. Mehl, and T. Nguyen. Patterns of invoicing currency in global trade: New evidence. Journal of International Economics, 136:103604, 2022. 2. G. Gopinath and R. Rigobon. Sticky borders. The Quarterly Journal of Economics, 123(2):531–575, 2008. 3. F. Benguria and F. Saffie. Escaping the trade war: Finance and relational supply chains in the adjustment to trade policy shocks. Journal of International Economics, 152:103987, 2024. 4. M. Almunia, P. Antras, D. Lopez-Rodriguez, and E. Morales. Venting out: Exports during a domestic slump. American Economic Review, 111(11):3611–62, 2021. - - - Auray I 1 Tariffs/Neo-Keynesianism/Auray/Devereux/Eyquem: We quantify the macroeconomic effects of the tariff measures announced (but not entirely implemented yet) on Liberation Day (April 2nd, 2025) through the lens of a New-Keynesian two-country model calibrated to the US and the rest of the world. We study both a unilateral 10pp tariff increase and a global trade war scenario with retalia- tory tariffs of a similar magnitude. In either case, tariffs are always sharply contractionary for US GDP, increasing inflation and widening the trade deficit. Measured in welfare terms a unilateral tariff generates gains for the US due to a large terms of trade appreciation, but these US welfare gains vanish with global retaliation. Three features of the model are critical in the evaluation of the tariff impact - the asymmetry in size and openness between the US and the rest of the world, - the endogenous response of monetary policy to the inflationary effects of tariffs, and - the importance of trade in intermediate goods for the scale of the global response to a tariff shock. Auray I 2 Retaliatory measures taken by trading partners can significantly amplify these effects. Reciprocal tariff hikes raise the cost of traded goods globally, reducing welfare and employment. Recent studies suggest that retaliatory tariffs may entirely offset any initial terms-of-trade gains for the US, leading to welfare losses of up to 1% and a decline in global employment of around 0.5% (Ignatenko et al. (2025)⁽¹⁾; Piermartini and Teh (2005)⁽²⁾). Import tax: Tariffs are taxes on imports. They drive a wedge between pre- and post-tariff prices, reducing demand for imports and depressing prices for exporters in partner countries. At the same time, tariffs increase demand for domestically produced goods, raising their prices. As a result, the terms of trade - defined as the relative price of domestic to foreign goods - improve, potentially benefiting local consumers. Whether this benefit outweighs the cost of tariffs depends on several factors. Welfare gain: If tariff revenues are returned to households - either through lump-sum transfers or lower taxes - there may be a net welfare gain from unilateral tariffs. The extent of this gain critically depends on the price elasticity of imports. >Elasticity, >Welfare gain, >Welfare, >Taxation. While this mechanism applies to trade in final goods, trade in intermediate goods - where firms import inputs for production - operates in a similar fashion. However, the resulting effects now bear directly on production costs rather than consumption. Beyond these demand-side considerations, broader general equilibrium effects must be taken into account. First, retaliation by trade partners may negate the initial terms-of-trade improvement, leaving both sides paying more for traded goods and experiencing a negative income effect.⁽³⁾ >Trade wars. Auray I 3 Second, household responses to tariffs, particularly in terms of labor supply, can affect the overall supply of goods, influencing prices and quantities in equilibrium. Finally, tariff-induced inflationary pressures may lead to monetary tightening, lowering aggregate demand and amplifying the contraction in economic activity.** * Stéphane Auray, Michael B. Devereux, and Aurélien Eyquem. (2025). Tariffs and Retaliation: A Brief Macroeconomic Analysis NBER Working Paper No. 33739 May 2025 ** See Bergin and Corsetti (2023)⁽⁴⁾, Bianchi and Coulibaly (2025)⁽⁵⁾ for discussions regarding the optimal monetary response to tariff shocks, Bandera et al. (2023)⁽⁶⁾ for a discussion of how monetary policy should respond to supply shocks. 1. Ignatenko, Anna, Ahmad Lashkaripour, Luca Macedoni, and Ina Simonovska. 2025. “Making America Great Again? The Economic Impacts of Liberation Day Tariffs.” Manuscript. 2. Piermartini, Roberta and Robert Teh. 2005. “Demystifying Modelling Methods for Trade Policy.” WTO Discussion Paper 10. 3. Auray, Stéphane, Michael B. Devereux, and Aurélien Eyquem. 2024. “Trade Wars, Nominal Rigidities and Monetary Policy.” Review of Economic Studies Accepted. 4. Bergin, Paul R. and Giancarlo Corsetti. 2023. “The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response?” Journal of International Economics :103758. 5. Bianchi, Javier and Louphou Coulibaly. 2025. “The Optimal Monetary Policy Response to Tariffs.” NBER Working Paper 33560. 6. Bandera, Nicolò, Lauren Barnes, Matthieu Chavaz, Silvana Tenreyro, and Lukas von dem Berge.2023. “Monetary Policy in the Face of Supply Shocks: The Role of Expectations.” ECB Forum conference paper. - - - Aguiar I 2 Tariffs/Economic theories/Aguiar/Amador/Fitzgerald: Prompted by the recent policy events, there are several new papers on the interactions between tariffs and trade deficits. Pujolas and Rossbach (2024)⁽¹⁾ study the welfare effects of trade wars in an Armington model with trade imbalances, where countries have exogenous international net (but not gross) positions. >Trade wars. Ignatenko et al. (2025)⁽²⁾ quantify the welfare effects of tariffs in a model with trade imbalances where net foreign asset positions are given but trade deficits endogenously respond to policy. Costinot and Werning (2025)⁽³⁾ analyze a dynamic model with fixed terms-of-trade and study the effects of a permanent increase in tariffs on the trade deficit by affecting the incentives of domestic households to save and consume. In a very related and contemporaneous paper, Itskhoki and Mukhin (2025)⁽⁴⁾ argue that absent valuation effects, tariffs do not affect the long-run trade deficit. 1. Pujolas, Pau and Jack Rossbach (Nov. 2024). Trade Wars with Trade Deficits. en. SSRN Scholarly Paper. Rochester, NY. 2. Ignatenko, Anna et al. (2025). “Making America Great Again? The Economic Impacts of Liberation Day Tariffs”. 3. Costinot, Arnaud and Ivan Werning (Apr. 2025). ´ How Tariffs Affect Trade Deficits. Working Paper. 4. Itskhoki, Oleg and Dmitry Mukhin (2025). “Can a tariff be used to close a long-run trade deficit?” Kehoe, Timothy J (1998). “Uniqueness and Stability”. Elements of General Equilibrium Analysis. Ed. by Alan P Kirman. Basil Blackwell, pp. 38–87. _____________ Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.	Trump Administration Benguria I Felipe Benguria Felipe Saffie Rounding up the Effect of Tariffs on Financial Markets: Evidence from April 2, 2025. NBER Working Paper 34036 http://www.nber.org/papers/ 1050. Cambridge, MA 2025 Devereux I Stéphane Auray Michael B. Devereux Aurélien Eyquem, Tariffs and Retaliation: A Brief Macroeconomic Analysis NBER Working Paper No. 33739 May 2025 Cambridge, MA 2025 Aguiar I Mark A. Aguiar Amador Doireann Fitzgerald, Tariff Wars and Net Foreign Assets. NBER Working paper 33743.Doi 10.3386/w33743. May 2025. Cambridge, MA 2025

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