Modelling the long-run economic impacts of a stylised US tariff increase: technical paper

Discussion

Comparisons to other organisations

The Office for Budget Responsibility (OBR) estimated that a scenario including 20% US tariff on UK goods could reduce UK GDP by 0.3% without retaliation and by 0.75% with retaliation by 5 years.^[9] Our results for a scenario of a 10% tariff are comparably larger in magnitude, primarily because our analysis is long run so we use an elasticity of trade of -2, compared to their value of -0.4. A lower elasticity assumption would reduce our estimates (see Annex F for sensitivity analysis).

Using a one-region model for Northern Ireland, the Northern Ireland Government found a 10% US tariff shock reduced Northern Ireland’s long-run GDP by 0.2%.^[10] This impact is similar to our figure for the Scotland-only shock, excluding the spillover effects from the shock to the rUK economy.