Trade Policy and Structural Change
General Economics
2025-11-18 v4 Economics
Abstract
We study how tariffs affect industrial structure and welfare in an economy where sectors are complements and preferences are nonhomothetic -- two drivers of structural change. Import tariffs on a sector influence sectoral composition by affecting its price relative to other sectors and national income, as well as the sector's net exports. We qualitatively characterize these mechanisms and use a quantitative dynamic model to show that a counterfactual 20-percentage-point increase in U.S. manufacturing tariffs would have raised the manufacturing value-added share by one percentage point and increased welfare by 0.41 percent. If trading partners retaliated, welfare would have fallen.
Keywords
Cite
@article{arxiv.2508.01360,
title = {Trade Policy and Structural Change},
author = {Hayato Kato and Kensuke Suzuki and Motoaki Takahashi},
journal= {arXiv preprint arXiv:2508.01360},
year = {2025}
}