Tariffs and Trade Deficits

12.03.2026 14:15 – 15:30

GTDW@IEE

Abstract:

We develop a dynamic multi-country Ricardian trade model with aggregate uncertainty, where trade imbalances emerge as countries exchange goods and assets. We introduce a method for computing counterfactuals in this setting, which doesn’t require specifying the stochastic process of shocks or solving for asset prices. Applying the model to tariff shocks, we quantify their effects on prices, income, spending, and trade imbalances. We find that higher U.S. tariffs reduce the U.S. trade deficit through general equilibrium adjustments, but raise domestic prices and lower real consumption. Our findings highlight that movements in trade imbalances are shaped by the structure of global trade and finance, and that attempts to influence external balances through changes in trade barriers carry significant implications for real economic outcomes.

Biography:

Lorenzo Caliendo is the Won Park Hahn Professor of Global Affairs and Management and Professor of Economics at Yale University. He holds a joint position at the Jackson School of Global affairs and the School of Management. He is also a Faculty Research Associate at the National Bureau of Economic Research (NBER), holds a courtesy appointment at the Department of Economics at Yale University, and is a Research Staff of the Cowles Foundation for Research in Economics.

He performs research in international trade, migration, spatial and macroeconomics. His research focuses on the determinants of the trade and welfare effects of commercial and migration policy, how foreign trade competition affects the organizational and wage structure of firms, and how sectoral and regional linkages matter in order to influence aggregate economic activity. His research has been published in leading academic journals like Econometrica, the Journal of Political Economy, the Quarterly Journal of Economics and the Review of Economic Studies. His research has also been covered by leading media outlets.

He holds a PhD in Economics and a Masters of Arts from the University of Chicago, and Masters in Economics from Auckland University. He was previously the Deputy Dean of Jackson School of Global Affairs, a Research Fellow at the IES-Princeton University, a Lecturer at the University of Chicago, and a Global Future Council Fellow at the World Economic Forum, The Future of International Trade and Investment Council, Associate Editor for Econometrica, the Journal of International Economics and the Journal of European Economics Association. He received Uruguay National Prizes in Economics from FCS and from ACADECO.


Research webpage: https://sites.google.com/site/lorenzocaliendo/research

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