Pau Pujolas | Searcharxiv

arXiv2026

Fiscal Limits to Protectionism: The 2025 U.S. Tariff Laffer Curve

We quantify the Tariff Laffer Curve for the U.S. using a multi-sector Ricardian model calibrated to the 2025 US trade war. We find revenue-maximizing tariffs of 20--30 percent and welfare-maximizing rates of 0--10 percent. We define the Marginal Fiscal Efficiency Index to partition tariffs into welfare-improving, trade-off, and revenue-decreasing regions. Expanding the trade war to more partners raises peak revenue even under retaliation, whereas coordinated retaliation sharply erodes welfare. By January 2026, 20 percent of U.S. tariffs exceed their Laffer peaks. Inverse-optimum estimation reveals diminished U.S. concern for foreign welfare, punitive treatment of China, and rising revenue motives.

econ.GN↗

arXiv2024

Trade Wars with Trade Deficits

Trade imbalances significantly alter the welfare implications of tariffs. Using an illustrative model, we show that trade deficits enhance a country's ability to alter its terms of trade, and thereby benefit from tariffs. Greater trade deficits imply higher optimal, or welfare maximizing, tariffs. We compute optimal unilateral and Nash equilibrium tariffs between the United States and China $\unicode{x2014}$ the countries with the largest bilateral trade imbalance $\unicode{x2014}$ using a multi-region, multi-sector applied general equilibrium model with service sectors and input-output linkages, a computationally complex task. Free trade benefits both countries compared to a trade war. Relative to existing tariff rates, however, the United States gains from a trade war with China $\unicode{x2014}$ a result that hinges on their bilateral trade imbalance.

econ.GN↗