Tariffs and Politics: Evidence from Trump's Trade Wars

Abstract

We use the recent trade escalation between the USA and its trade partners to study whether retaliatory tariffs are politically targeted. We find comprehensive evidence using individual and aggregate voting data suggesting that retaliation is carefully targeted to hurt Trump. We develop a simulation approach to construct counterfactual retaliation responses allowing us to quantify the extent of political targeting while also studying potential trade-offs. China appears to place great emphasis on achieving maximal political targeting. The EU seems to have been successful in maximising political targeting while at the same time minimising the potential damage to its economy.