Page 6 - The Impact of the 2018 Trade War on U.S. Prices and Welfare

62 percent of U.S. imports continued to enter duty free, the fraction of U.S. imports facing duties

of over 10 percent rose from 3.5 percent in December of 2017 to 10.6 percent by October of 2018.

It was not only U.S. tariffs that went up in 2018. Many foreign countries retaliated against

the U.S. by applying tariffs of their own. In April, China began by levying tariffs on 3.3 billion

dollars of U.S. exports of steel, aluminum, food, and agricultural products, followed by 50 billion

dollars of U.S. exports in July and August, and another 60 billion dollars of exports in September.

That summer, they were joined by the EU, Mexico, Russia, and Turkey, who all began levying

retaliatory tariffs on U.S. exports. All told, approximately $121 billion of U.S. exports were

affected by these retaliatory tariffs.

3. Conventional Price Impacts: Data

U.S. import tariffs had an almost immediate effect on prices in the U.S. economy. Figure 2

presents evidence of this for one of the first sectors targeted by the Trump administration: washing

machines. The first panel shows what happened to the consumer price index (CPI) for major

appliances, which is broad category of goods that includes washing machines. As one can see in

the figure, despite the fact that the CPI for major appliances had been falling steadily for years

prior to the trade war, it began rising sharply after the imposition of the new tariffs.

While it is impossible to match most import codes cleanly to the CPI because they appear in

many CPI categories and many CPI categories contain a variety of imported products, we can

obtain a clear sense of how the tariffs are being passed through into domestic prices by considering

what has been happening to the prices paid by U.S. importers. U.S. customs data reports the foreign

export values and quantities, i.e., the values and quantities of imports by source country at the 10-

digit level of harmonized tariff system (HTS10 data). These data break up monthly U.S. imports

from each country into approximately sixteen thousand narrowly defined categories. By dividing

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