Are tariffs an economic trump?

Barriers to free trade slow economic growth and reduce the efficient use of resources. Although economic theory shows that trade benefits countries overall, some people mistakenly see it as a zero–sum game in which one country's gain is another's loss. Tariffs are a key obstacle because they raise the price of imported goods to protect domestic industries. This paper uses recent OECD data to examine how higher tariffs affect the entire U.S. economy, both with and without retaliation from trading partners. The analysis uses a nonlinear input–output model to capture how consumers and firms substitute between domestic and imported goods when prices change. It considers both intermediate goods used in production and final goods consumed by households. The model allows for vertical and horizontal substitution across product varieties and distinguishes five trading partners, each supplying different varieties and facing different tariff rates.