The Impact of Tariffs on Profits in the United States and Other Major Trading Countries

Abstract

In this paper, we use the Michigan Model of World Production and Trade to analyze the impact of protection on total and per unit profits in the U.S. and other major trading countries. It is found that protection reduces profits in the export sectors more than it stimulates profits in the import-competing sectors. However, total profits of export and import-competing firms combined are generally unaffected by existing tariffs. Furthermore, most of the profit transfers between exporters and import-competing firms take place within the same industry rather than across industries. Therefore, general tariff measures are not likely to enhance profits of U.S. industries. Only tariffs aimed at specifid product groups may have this effect.