September 10, 2025IMF Working PaperOpen Access

Trade Partners’ Responses to US Tariffs

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Retaliatory tariffs can hurt US exports while improving terms of trade, creating economic distortions.
Imposing subsidies helps expand exports but incurs costs and exacerbates trade diversion and distortion effects.
Countries pursuing integration with trade partners can mitigate distortions while enhancing trade opportunities.
Even with US tariffs, deepening integration boosts real income for liberalizing countries and the global economy.

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Quantitative trade model explores how tariffs influence retaliatory measures and trade agreements.

Rotunno et al. (2025) studied this question.

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