Monday , July 22 2019
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Tariffs raise the prices of domestic goods too

Summary:
There is a nice article in the NY Times about the Trump tariffs imposed on washing machines. It should be useful as a classroom illustration.  This snip-it caught my eye: It is hardly surprising that the tariffs drove up the price of foreign washers. Perhaps more unexpectedly, they also prompted American manufacturers to raise their prices. This fact should not be unexpected to anyone to anyone familiar with the textbook analysis of tariffs. When foreign and domestic goods are close substitutes, increases in the price of foreign goods caused by tariffs raise the price of domestic goods. See Chapter 9 of my favorite textbook.

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There is a nice article in the NY Times about the Trump tariffs imposed on washing machines. It should be useful as a classroom illustration.  This snip-it caught my eye:
It is hardly surprising that the tariffs drove up the price of foreign washers. Perhaps more unexpectedly, they also prompted American manufacturers to raise their prices.
This fact should not be unexpected to anyone to anyone familiar with the textbook analysis of tariffs. When foreign and domestic goods are close substitutes, increases in the price of foreign goods caused by tariffs raise the price of domestic goods. See Chapter 9 of my favorite textbook.
Greg Mankiw
I am the Robert M. Beren Professor of Economics at Harvard University, where I teach introductory economics (ec 10). I use this blog to keep in touch with my current and former students. Teachers and students at other schools, as well as others interested in economic issues, are welcome to use this resource.

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