The economic consequences of an import surcharge: Theory and empirical evidence for the U.S. economy

This paper analyzes the impact of a 20 percent import surcharge on all U.S. imports and on imports from Japan, South Korea, Taiwan, and Brazil. The analytical framework is based upon the Michigan Model of World Production and Trade. We also discuss the methodology and results of two recent papers on the effects of an import surcharge. The empirical results indicate that, while the macroeconomic consequences of an import surcharge would be limited, significant intersectoral trade and employment adjustments would take place. The competitive position of U.S. tradable industries may improve or deteriorate depending on whether the dollar depreciates or appreciates in response to the import surcharge.