Aurélien Eyquem, University of Lausanne

"Tariffs, Automation, and Business Dynamism"

Abstract

Can protectionism slow automation and revive business dynamism? We study this question in a dynamic open-economy model with heterogeneous firms, endogenous entry, exporter selection, and task-based production in which routine tasks can be performed by workers or robots. Import tariffs reallocate expenditure toward domestic producers, temporarily raising entry and expanding domestic varieties, but reduce profitability for intermediate producers, and lower GDP at factor prices. Tariffs make automation less attractive and persistently shift production toward routine labor, reducing long run productivity. Routine workers benefit from transfers, reduced training, and lower automation, while non-routine workers face wage compression. Firm owners gain from domestic demand and aggregate profits on final goods. Commuting-zone evidence from the 2018–2019 U.S. tariff episode links protection against Chinese imports to slower reallocation away from routine production tasks and toward digital tasks. Broader exposure across all tariff-affected partners is also associated with lower imputed foreign sales content and higher domestic content, consistent with expenditure switching.

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