The effect of (moderate) import tariffs on inflation and interest rates: A case about Protectionism.
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2025-07-03
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en
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The aim of this paper is to analyze whether tariffs have a direct effect on interest rates, and if this direct effect is mediated through inflation. To facilitate this aim, a mediation analysis is employed to evaluate if inflation acts as a mediator between those two variables. The motivation of this empirical analysis lies at the 2018 -2019 trade war between the US and the rest of the world, as well as the liberation day tariffs announced in 2025 by President Donald Trump. The analysis first evaluates the direct effect of tariffs on interest rates, then regresses tariffs on inflation to evaluate the mediator, and lastly regresses both tariffs and inflation on interest rates. The models include lags of some variables to account for time adjustments in policy. The results are evaluated with a robustness check that excludes outliers and influential variables to isolate the effect of moderate tariffs on the economy. The main findings show that there are both country and time differences. In cases of free trade, tariffs do not directly affect interest rates, whereas during projectionist times, there can be seen both a positive direct effect and a negative indirect effect through inflation.
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Faculteit der Managementwetenschappen