Who is paying for the Tariffs? China or the US Consumer?

We present a counterfactual (i.e., what might have been if the tariffs were not in place) analysis of the impact of tariffs imposed on China by the Trump administration, starting in February 2018. If you want to skip straight to the results, scroll down to the charts and the green curve towards the end represents the estimated price of the goods in the absence of tariffs. The maximum percentage difference between our estimate and the actual price is also marked in the charts.

Brief background of the Synthetic Control Method

The analysis is done using the Synthetic Controls method pioneered by Abadie et. al., and which I have recently started extending with colleagues at MIT. A more detailed explanation of the technique can be found here, but the basic idea is to analyze the impact of a "treatment unit" by creating a synthetic version of the treatment unit using a combination of untreated units, and then compare the behavior of the treatment unit post the intervention with the behavior of the synthetic version, which has not undergone treatment, i.e. the "counterfactual". The reason you can build a model of the treatment unit from other units is the assumption that there is correlation between those units. For instance the price of one commodity is affected by factors like gas prices, seasonal demand, consumer confidence etc., and those same factors (or some combination) affect prices of other commodities.

In our analysis here, the "intervention" is the application of tariffs in February 2018, shown by the vertical line in all the graphs, and the price data is obtained from the Bureau of Labor Statistics. The data is from January 2010 to July 2019 and includes 328 separate categories. The prices are relative prices with the 1984 price of the corresponding good set as 100. The categories of tariff affected and unaffected goods were obtained from Anthony DeBarros and Josh Zumbrun as a follow up to their WSJ article Despite Reprieve, New Tariffs Will Hit Wide Range of Consumer Goods. The counterfactual curve in all the plots is our estimate of what the price would have been if the tariffs had not been imposed.

Initial findings

Our initial analysis indicates a clear rise in prices paid by consumers as a result of tariffs. We also present a few counterfactuals of tariff unaffected goods, as an example of placebos where no such clear trend of rise in prices can be observed.

Caveats:

This is a very quick and initial analysis of data, for a detailed economic model and analysis please look at the paper The Impact of the 2018 Trade War on U.S. Prices and Welfare by Amiti, Redding and Weinstein. Our analysis is generally supportive of their conclusions.
Our analysis does not study and draws no conclusions on the long term impact of tariffs.