Which Sectors Have Benefited from Tariffs?

International trade has never been entirely free. Even in the heady days following the fall of the Soviet Union and China’s emergence as a manufacturing hub, policymakers imposed tariffs and erected other trade barriers to protect their domestic markets. Economists and political commentators have come up with an abundance of plausible theories explaining what motivates this protectionist impulse. These include the need to maintain national security and safeguard jobs (including those of policymakers) and the incentive to curry favor with voters and politically organized constituents.

But tariffs may also reflect a desire to redistribute wealth. The tipping of the trade scale results in large monetary transfers from certain groups to others, according to Chicago Booth’s Rodrigo Adao, Princeton’s John Strum Becko, and MIT’s Arnaud Costinot and Dave Donaldson. Their study is grounded in the logic of quantifying who benefits financially, regardless of the reasons for the favoritism.

Since its formation in 1995, the World Trade Organization has overseen a set of rules aimed at ensuring that trade in goods and services flows as smoothly as possible. Although the WTO also seeks to promote free trade, its members have consistently maintained tariffs and various forms of nontariff barriers even before the recent bout of American trade protectionism.

To understand the motivations behind such barriers, the researchers used as a base 2017–19 US data broken down by each of the 50 US states and the District of Columbia. They observed transactions involving 21 industries with tradable products—as well as the services sector, whose output is not subject to tariffs and therefore served as a benchmark.

“US tariffs end up representing a transfer from those employed in services to those employed in tradable sectors,” says Adao. “The variation in tariffs across goods creates larger or smaller gains across workers employed in different tradable sectors.”

The researchers then estimated how these tariffs affected imported products. Those estimates became the basis of a theoretical model, which the study validated with real data. The model was able to replicate the actual effects of the Trump administration’s 2018 tariff policy changes.

A key premise of this analysis is that the changes observed in real imports between 2017 and 2019 resulted from policymakers’ desire to favor some constituencies over others rather than from fundamental changes in the US economy.