Analyzing the impact of import tariff on the EU and the US Economy : To what extent does changes in tariff revenue impact the real GDP for the United States of America and the European Union?

The United States of America (USA) is shifting its trade policy from free trade and multilateral agreements to protectionism by imposing import tariffs. We aim to explore the relationship between the USA’s tariff revenue and real GDP for the European Union (EU) and the USA. In this thesis, the EU and the USA are referred to as large economies. The classical theory of import tariffs provides a foundation for the hypothesis of regression analysis and the Liberation Day tariff. The USA’s hypothesis states that duties collected positively impact real GDP. The EU’s hypothesis states that the US duties collected positively impact the EU exports. Through the national accounting identity, the increases in EU exports impacts the EU’s real GDP. The dataset includes 64 years, from 1969 to 2024, for the USA, and 32 years, from 1993 to 2024, for the EU. The tariff revenue is an added variable to the regression and measured in duties collected (USD). The main findings of this paper suggest a positive relationship between tariff revenue and the real GDP of the US and the EU. The US regression shows a positive relationship because of short-term gains, before retaliatory actions are implemented. The positive effect of the EU is explained through factors such as a diversified export portfolio and trade diversification.