Consumer surplus increase from US tariffs

Tariffs and politics: evidence from Trump’s trade wars Thiemo Fetzer, Carlo Schwarz

https://cep.lse.ac.uk/pubs/download/cp553.pdf

Takes increases in the relative value of US imports for tariffed goods as a sign that the same number of goods are being imported at a higher cost. (fair assumption)

However, assumes that drops in the total value of goods of non-tariffed goods imply a decrease in the total number of goods being increased and that their costs do not change.

Does not take into account that if currency values depreciate then the total amount of goods can remain static while the total price paid for goods decreases. And jumps to the conclusion that this implies a substantial shock to supply chains with firms moving out of the United States.

Assumes that retaliatory tariffs from non-US countries do not cause relocation away from those countries towards the US, but tariffing the US also causes US firms to leave the US.

Obviously somewhat contradictory without any data to back up these claims.

‘We argue that conventional trade models provide a powerful framework for understanding the effects of the tariffs on prices, quantities and welfare. The impacts of the tariffs have been largely in line with what one might have predicted based on a simple supply and demand framework.’  They seem to think that the estimates implies by their models are proof that their models are a useful framework.

https://fred.stlouisfed.org/series/TWEXB

The trade weighted dollar strength index shows a value of 120.31 in December 2017, and 125.88 in October 2018.

The paper shows an increase in average tariff rates on US imports from 1.5% to 3.5% over this time period, representing a 1.97% relative increase in prices for US importers.

The trade weighted dollar strength index shows a relative increase of 4.63% over this time period. Leading to a 2.54159% decrease in total amount paid for the same goods in October 2018. This doesn’t take into account any substitution effects which can only increase the total value/utility of imports.

Assuming a linear relationship between deadweight loss and added costs and the total increase in prices, factoring in dollar currency appreciation, the total cost of $4.4B to US consumers becomes a: $5.7B gain for the US consumer.

Posting this in case anyone steals the idea and claims it was theirs.

Full paper coming out before december 25th. WIll be here. Webarchived to keep a reccord of the exact date. Updates coming soon.

If any report or paper comes out with this thesis before then it was stolen from me.