This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: Tariffs are usually debated as trade policy. But a study from the University of Chicago Booth School of Business treats them as something else: a mechanism for redistributing wealth.
The tilt in the trade balance results in large monetary transfers from certain groups of workers to others, according to research led by Chicago Booth Prof. Conducted with Princeton University Asst. John Sturm Becko and MIT professors Arnaud Costinot and Dave Donaldson, the study is grounded in the logic of quantifying who benefits financially, regardless of the reasons for the favoritism.
To understand the motivations behind such barriers, the researchers used U.S. data from 2017–19 as a basis, broken down by each of the 50 states and the District of Columbia. They observed transactions involving 21 industries with tradable products—as well as the services sector, whose output is not subject to tariffs and therefore served as a benchmark. "U.S. tariffs end up representing a transfer from those employed in services to those employed in tradable sectors," Adão said.
"The variation in tariffs across goods creates larger or smaller gains across workers employed in different tradable sectors." The researchers then estimated how these tariffs affected imported products. Those estimates became the basis of a theoretical model, which the researchers validated with real data. The model was able to replicate the actual effects of the Trump administration's 2018 tariff policy changes.
A key premise of this analysis is that the changes observed in real imports between 2017 and 2019 resulted from policymakers' desire to favor some constituencies over others rather than from fundamental changes in the U.S. economy. "Society values transfers to some individuals much more than others," Adão said. "It designs trade policy so that income transfers to some individuals, primarily those in preferred sectors, have a much higher social value than others." Indeed, had the tariffs not redistributed wealth, individuals at the 90th, 95th and 99th percentiles of the researchers' estimates would have received lower real earnings—down by $538, $1,727 and $2,861, respectively.
Individuals at the 10th percentile, by contrast, would have made $621 more. These differences were largely driven by discrepancies in the tariffs' effects on specific sectors, as policymakers seemingly favored some over others. The data indicate that income in the apparel, metals and vehicles sectors was worth 140% more to policymakers than the U.S. average.
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