"For a benchmark, the Handbook of International Economics chapter by Costinot and Rodriguez-Clare (2014) indicates
that the optimal tariff for the United States under plausible parametrizations is around 20%. Indeed, as long as tariffs
don’t exceed 50%, they are still welfare-enhancing relative to completely open trade. In other words, increasing
effective overall tariffs from currently low levels near 2% will actually boost aggregate welfare in the United States.
Once tariffs begin increasing beyond 20% (on a broad, effective basis), they become welfare-reducing. Investment
houses are now projecting that the projected effective rate of the tariffs proposed by President Trump will jump from
2.3% to 17%, just shy of this 20% level.15"
So we're looking at 20%+ across the board? Awesome.
How can they be welfare-enhancing at sub 50% but also welfare-reducing at 20%+?
So we're looking at 20%+ across the board? Awesome.
How can they be welfare-enhancing at sub 50% but also welfare-reducing at 20%+?