Leveraging U.S. Business Adjustments: Most-Favored-Nation Tariffs and Trade Diversion

An academic study in quantitative finance examines the impact of most-favored-nation (MFN) tariff increases on trade patterns. Based on domestic and foreign trade data, the study employs a structural gravity model with CES-consistent bilateral tariff margins, using recent U.S. trade policy changes as an empirical application. The study finds that MFN tariff increases reduce imports while diverting trade toward preferential exporters, with significant heterogeneity across industries and regions, and losses most concentrated in intermediate and capital goods.