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Economic Perspectives, Vol. 11, 4th, No. 6, November 1987
Some macroeconomic effects of tariff policy

The exchange value of the dollar against the currencies of most of the United States' major trading partners-especially Japan and West Germany-has fallen significantly since reaching a peak in early 1985. Yet U.S. current account deficits with these countries have yet to show substantial reductions. Impatience on the part of export industries has been reflected in some recent protectionist legislation, with the promise of more to come.


A typical argument for protectionist legislation emphasizes two supposed results from higher tariffs. First, by making foreign goods more expensive, tariffs cause imports to fall and thus improve the current account. Second, as domestic residents shift expenditure patterns from foreign to domestic goods, home employment and production are stimulated. Fewer Americans driving Toyotas and BMWs mean more jobs for blast furnace operators in Gary, for tire producers in Akron and for assembly line workers in Flint.



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