407/2019 Thiemo Fetzer and Carlo Schwarz

We use the recent trade escalation between the US 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 both quantify the extent of political targeting, while also studying potential trade-offs. China, appears to put a large weight on achieving maximal political targeting. The EU seems successful in maximizing political targeting, while at the same time minimizing the potential damage to its economy.

Political Economy

The Economic Journal

https://doi.org/10.1093/ej/ueaa122