Tariff scenario briefing

Problem we solve

Tariff debates in the news cycle collapse into single-number claims: a tariff raises revenue, or destroys jobs, or raises consumer prices. A briefing that supports a real decision needs to disentangle who pays at each step, how much flows through to downstream prices and quantities, and how the answer changes when the partner retaliates. The engagement addresses three distinct questions that tend to be confused in practice.

First, a single-country, unilateral tariff on a specified set of HS6 lines: what happens to border prices, domestic prices, import volumes, domestic output, and tariff revenue? Second, a bilateral tariff change, whether cooperative or imposed, between two specified partners: what is the direct and the third-country effect? Third, a retaliation scenario in which the targeted partner responds on a set of sensitive HS6 lines: how does the welfare calculus change, and where along that curve does the optimal-tariff result of Broda, Limao and Weinstein (2008) place the initiating country?

What we estimate

The partial-equilibrium layer estimates price pass-through at the HS6 line using the Amiti, Redding and Weinstein (2019) decomposition into exporter, importer, and tariff-inclusive margins. Pass-through is reported as a point estimate with a 90 percent interval, by sector and by partner, with the share of the tariff that lands on the importer versus the exporter and the implied effect on the consumer-price index in the affected basket.

The general-equilibrium layer implements the Caliendo and Parro (2015) quantitative trade model, which augments Eaton-Kortum with intermediate inputs and sectoral input output linkages. The model returns welfare, real wage, trade flow, and sectoral value added changes under the specified counterfactual, solved at sector level with calibrated input-output linkages. An optimal-tariff block, following Broda, Limao and Weinstein (2008), computes the inverse-export-supply elasticity for the initiating country on the affected lines and reports the unilaterally welfare-maximising tariff as a reference point.

Data used

CEPII BACI bilateral trade at HS6 from 1995 forward, harmonised across mirror reports, with values converted from thousands of USD to current USD for reporting. WITS MFN and applied tariff rates at the HS6 line for baseline and counterfactual tariffs. Kee, Nicita and Olarreaga (2008, 2009) import-demand and export-supply elasticities at HS6 for the partial-equilibrium and optimal-tariff blocks. Where available, national input-output tables from OECD TiVA or WIOD are used for the sector-level GE calibration, with CEPII Gravity used for the bilateral trade cost controls.

For proposed tariffs that sit outside the standard HS6 lines, such as a tariff-rate quota or a product-specific Section 232 style measure, the client provides the intended legal text and we build the HS6 concordance from WCO and USITC crosswalks. The concordance is included in the deliverable so that a client counsel can verify the mapping.

Method sketch

Partial-equilibrium pass-through is estimated as a reduced-form regression of tariff-inclusive border prices on the tariff change, controlling for exporter, importer, and product fixed effects, following the Amiti, Redding and Weinstein (2019) two-way decomposition. The GE block solves the Caliendo-Parro system for the specified counterfactual under the calibrated trade cost structure. Welfare and sectoral results are reported at the country and sector level, with a full sensitivity analysis on the trade elasticity sigma and on theta, the shape parameter of the productivity distribution, across the Eaton-Kortum-canonical range.

Retaliation variants are implemented as additional counterfactual rounds in the GE solver, with retaliation basket selection either client-specified or drawn from revealed historical patterns in the US-China episode. The optimal-tariff result is reported alongside the proposed tariff so that a reader can see whether the proposal over- or under-shoots the unilateral welfare-maximising point.

Deliverable

A twenty-five-page brief covering the three scenario layers: partial-equilibrium pass-through at the HS6 line, general-equilibrium welfare and sectoral impact under Caliendo-Parro, and retaliation and optimal-tariff variants. Each scenario carries a headline table, a sectoral incidence chart, a sensitivity band on sigma and theta, and a short decision memo that names the assumptions the result is most sensitive to.

Alongside the brief, the client receives a Parquet panel of the baseline and counterfactual flows, prices, and welfare results at sector by partner, together with the documented DuckDB queries and the Caliendo-Parro solver configuration. One-week variants on the baseline scenario, such as a different retaliation basket or a shifted tariff line, are produced against the same calibrated model without repeating the setup.

Related workbench pages

The public workbench has an interactive partial-equilibrium simulator and a reference implementation of the general-equilibrium model, which is the fastest way to see the method before commissioning. See the tariff lab for the interactive PE tool, the tariff scenarios overview for the canned-scenario catalogue, and the tariffs page for the baseline MFN and applied-rate landscape. The GE reference implementation sits at Caliendo-Parro (2015). For applied case studies, see the ongoing US-China trade war tracker and the trade finance page for the financing-side incidence.

Timeline

Typical engagement runs three weeks per scenario: week one for scope, tariff-line concordance and baseline calibration, week two for the partial- and general-equilibrium runs, and week three for sensitivity, retaliation variants, and the written brief. Each additional variant on an established calibration, such as a retaliation basket swap or a different trade-elasticity assumption, typically adds one week.

Start a conversation

If a tariff scenario briefing fits the current question, contact us with the proposed tariff lines, the partner or partners involved, and the decision the briefing should inform. We reply within two business days with a scoping memo, an indicative tariff-line concordance, and a timeline.