Profile picture
Fabio Ghironi @FabioGhironi
, 15 tweets, 4 min read Read on Twitter
The arguments in the article by @greg_ip below echo the results that Ale Barattieri, Matteo Cacciatore, and I find in our recent @nberpubs Working Paper on “Protectionism and the Business Cycle”:… 1/n
Our empirical evidence focuses on small open economies, but it confirms that tariffs act as negative supply shocks that cause prices to rise, output to fall, and have at best a modest effect on the trade balance. 2/n
This happens even when protectionist actions are taken with respect to specific goods that do not represent a large portion of total imports, given the size of the actions and their propagation. 3/n
Our theoretical model yields similar results: tariff shocks cause prices to rise and cause the economy to contract by reducing investment, firm creation, and by reallocating market share toward lower-productivity firms. 4/n
The central bank’s response to rising inflation contributes to the contractionary impact of protectionism. 5/n
Whatever trade balance improvement happens in the model comes at the cost of inflation and contraction of the economy. 6/n
Hence, our conclusion that protectionism (even temporary, and even in counterfactual scenarios we consider) remains a bad idea. 7/n
Now, our study focuses on small, open economies, whose actions do not affect the rest of the world—a very different situation from the US. 8/n
We did that precisely because, in this paper, we wanted to stay away from the issue of strategic retaliation and trade war: 9/n
In our paper, the small economy that imposes a tariff does not trigger reaction because the impact of its policy actions on its partners is negligible (though the domestic impact is obviously significant). 10/n
The US is a *large*, open economy. Its actions do have a significant impact on its partners. Informed guess? 11/n
As @greg_ip comments and our paper finds for the economies we looked at, I expect that the tariffs will act as a negative supply-side shock, and the Fed’s reaction will matter. 12/n
Moreover, it is a pretty safe assumption that negatively affected partners (including the pretty large ones whose actions do affect the US) won’t sit on their hands and will retaliate. No fun for anyone. 13/n
And all this for, most likely, a minuscule effect (if any) on the US trade balance.
Navarro-style ignorance of international economics at its worst. 14/n
If you are interested in reading our paper, here are all the available versions:
- @nberpubs Working Paper:
- @cepr_org Discussion Paper:…
- Ungated:… (main text) and… (appendix) n/n
Missing some Tweet in this thread?
You can try to force a refresh.

Like this thread? Get email updates or save it to PDF!

Subscribe to Fabio Ghironi
Profile picture

Get real-time email alerts when new unrolls are available from this author!

This content may be removed anytime!

Twitter may remove this content at anytime, convert it as a PDF, save and print for later use!

Try unrolling a thread yourself!

how to unroll video

1) Follow Thread Reader App on Twitter so you can easily mention us!

2) Go to a Twitter thread (series of Tweets by the same owner) and mention us with a keyword "unroll" @threadreaderapp unroll

You can practice here first or read more on our help page!

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just three indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member and get exclusive features!

Premium member ($3.00/month or $30.00/year)

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!