Protectionism and inequality

This paper studies the distributional outcomes of protectionism. First, we investigate the short-run distributional effects on workers with different skill levels by estimating structural vector autoregressions (VARs) using high-frequency measures of temporary trade barriers for the United States. We then estimate a panel VAR for a sample of thirty-six countries using the applied tariff rates. Across our empirical exercises, we find robust evidence that protectionism reduces the skill premium but increases the employment ratio between high-skilled and low-skilled workers. To rationalize these findings, we build a two-country dynamic general equilibrium model featuring asymmetric search-and-matching (SAM) frictions, capital-skill complementarity (CSC) in production, and producer dynamics. Our model results replicate the empirical patterns. Our counterfactual analysis highlights the interaction between asymmetric SAM and CSC in qualitatively shaping the distributional patterns of protectionism, with producer dynamics magnifying these effects quantitatively.