By Jeff Ferry and Amanda Mayoral
Can tariffs can be effective at raising domestic output and income? We introduce real-world factor supply elasticities to the standard Global Trade and Analysis Project (GTAP) and find that real GDP can grow by nearly 6% and domestic manufacturing by 18%. The increase in GDP leads to an increase in employment, with 2 million new manufacturing jobs and average household income rises by 18%. The growth in our model is driven by growth in the manufacturing sector, although all major sectors of the economy grow. By allowing factors of production to respond to price changes-a key dynamic in the economy, we see double digit growth the manufacturing sector.
