Page 9 - The Impact of the 2018 Trade War on U.S. Prices and Welfare

machine and solar panel (wave 1) imports prior to the imposition of tariffs was likely caused by

importers moving forward import orders in order to obtain products before the imposition of the

tariffs. For the remaining goods, it appears that on average their import levels were rising a little

faster than for unaffected goods in the months prior to the imposition of the tariffs, but there was

a steep decline in import values after the imposition of the tariffs. The drops in imports following

the imposition of the tariffs are quite large in magnitude. We see import values falling 25 to 30

percent after the imposition of the tariffs. This drop is particularly striking given that the imports

of unaffected sectors and countries rose by about 10 percent over the same period, where this rise

could in part reflect some import substitution from affected to unaffected countries and products

in response to tariff changes. These results suggest that the imposition of the tariffs had very large

relative impacts on the amount of imports for affected countries and sectors.

4. Conventional Price Impacts: Theory

We can understand why we observe these patterns by considering the standard textbook

model of import tariffs given in Figure 5. The horizontal axis plots the quantity of home imports

∗
( ) and the vertical axis corresponds to import prices ( ) and foreign exporter prices ( ). The
∗
foreign export supply curve ( ) rises with prices, which reflects the fact that higher prices induce

foreign producers to increase production and foreign consumers to decrease consumption. In

contrast, home import demand ( ) falls with prices, which captures the fact that higher prices also

reduce demand by domestic consumers and increase production by domestic firms. In the absence

∗
of tariffs, markets will clear with an equilibrium price ( = ) that equalizes import demand and
@
@
export supply when imports equal .
@
Within this simple framework, an ad valorem tariff on imports of raises the cost of the

∗
∗
imported good in the domestic market from to (1 + ). As a result of this higher price,

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