Page 25 - The Impact of the 2018 Trade War on U.S. Prices and Welfare

order to avoid the tariffs. We find that the U.S. tariffs were almost completely passed through into

U.S. domestic prices, so that the entire incidence of the tariffs fell on domestic consumers and

importers up to now, with no impact so far on the prices received by foreign exporters. We also

find that U.S. producers responded to reduced import competition by raising their prices.

Our estimates, while concerning, omit other potentially large costs such as policy uncertainty

as emphasized by Handley and Limão (2017) and Pierce and Schott (2016). While these effects of

greater trade policy uncertainty are beyond the scope of this study, they are likely to be

considerable, and may be reflected in the substantial falls in U.S. and Chinese equity markets

around the time of some of the most important trade policy announcements.

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