Upcoming tariffs can actually lower prices and expand economic output in the short term because firms 'front-run' the tax.
When a future tariff is announced, companies rush to import massive amounts of inventory to beat the price hike. This surge in supply creates a temporary downward pressure on prices and a boost in output, potentially making a trade war look economically beneficial in the months before the tax actually takes effect.
Tariff Front-Running
SSRN · 6471019
We examine US firms' responses to future tariff increases and their macroeconomic implications. We build a novel firm-level import dataset spanning from 2012 to 2019, a period covering the 2018-2019 trade war on steel, aluminum, and Chinese imports. We find a significant front-running response to tariffs. First, firms' imports, inventories, and their number of product-country partners begin to increase four quarters before a tariff increase. Second, before a specific product-country is affected