How a tariff-based trade policy affects domestic prices, import volumes and welfare: an empirical analysis of the eu´s retaliatory tariffs on the Us

Abstract

This Project examines how the retaliatory tariffs imposed by the EU in response to the US steel and aluminum tariffs affect EU prices and welfare over the period from June 2018 to May 2020. Using a partial equilibrium model that assumes perfect competition, the graphical analysis and the regression show that the prices of the goods subject to the tariffs are fully passed on to EU producers and consumers, suggesting that they bear the full burden of the tariff increase. Consequently, the EU suffers a deadweight welfare lossof almost€144 million over the two years considered.