An Empirical Analysis of Tiff's Impact on American Business Formation

TL;DR

This paper empirically investigates the impact of US tariffs and retaliatory measures on American business formation, revealing that retaliation largely offsets the positive effects of tariffs, and highlighting the limited net benefits of protectionist trade policies.

Contribution

It provides the first empirical analysis quantifying the offsetting effects of retaliatory tariffs on the benefits of US protectionist policies using county-level data.

Findings

US tariffs positively correlate with business applications

Retaliatory tariffs significantly negate the benefits of US tariffs

Control variables like inflation and government spending positively influence business formation

Abstract

This study examines whether the tariff policies delivered on promises to revitalize American manufacturing and create jobs. Using county-level business application data from 2018-2025, we analyze the relationship between tariff implementation and new business formation through linear regression analysis. Our findings reveal a statistically significant positive association between US tariffs on China and American business applications. However, when Chinese retaliatory tariffs are included in the analysis, their negative coefficient substantially exceeds the positive US tariff effect, suggesting that retaliatory measures largely offset the benefits of protectionist policies. Control variables including inflation rate, federal funds rate, and government spending show significant positive effects on business formation. These results indicate that while protectionist trade policies may stimulate domestic business formation, their effectiveness is significantly diminished by retaliatory responses from trading partners. The study provides evidence that unilateral tariff measures without diplomatic coordination produce limited net benefits, confirming that trade wars create scenarios where potential gains are neutralized by counteractions.