“These higher tariffs are likely to create large economic distortions and reduce US tariff revenues,” the report, which was co-authored by Princeton’s Stephen Redding and Columbia University’s David Weinstein, warned.
The researchers came to the estimate by projecting the amount of additional tax created by the tariffs as well as so-called deadweight losses. Deadweight losses come as a result of companies, when faced with higher costs to import goods from a particular country, shift to another producer that is less efficient (for example, moving from China to Vietnam).
Such “losses tend to rise more than proportionally as tariffs rise because importers are induced to shift to ever more expensive sources of supply as the tariffs rise”, the report said.
