Who Suffers Most in a Trade War — Businesses or Consumers?

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MIT SMR Strategy Forum

Each month, we pose a question about business, management, technology, or public policy to our panel of academic experts. Here you can see what they think and why.
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We asked our panel of strategy experts to tell us how strongly they agree with this statement:

A trade war will be more disruptive to business than to consumers.
RAW RESPONSES
WEIGHTED BY CONFIDENCE

Raw Responses

Responses weighted by panelists’ level of confidence

Panelists

Panelist Vote Confidence Comments

Aaron Chatterji

Duke University
Profile
Disagree 5

Anita McGahan

University of Toronto
Profile
Neither Agree nor Disagree 4 “Both businesses and consumers in targeted sectors will be affected more intensively than in other sectors. Tariffs that induce inefficiency to redistribute wealth will ultimately fail. ”

Ashish Arora

Duke University
Profile
Agree 8

Barry Nalebuff

Yale University
Profile
Agree 8 “Trade wars both raise prices and create uncertainty. The uncertainty is often worse than higher prices. (This is why putting a sunset clause into the trade deal with Canada was a clear poison pill.) ”

Daniel Levinthal

University of Pennsylvania
Profile
Strongly Agree 7 “Consumers face possible high costs but have the availability of substitutes. Firms risk losing market access and/or viability — a loose analogy to a displacement of a Cournot equilibrium to a Bertrand equilibrium.”

Erik Brynjolfsson

Massachusetts Institute of Technology
Profile
Strongly Agree 8 “The first-order effects of trade barriers are to rearrange supply chains as consumers make substitutions. Trade barriers on intermediate goods (like steel) are even more disruptive for businesses.”

Jennifer Brown

University of Utah
Profile
Neither Agree nor Disagree 5 “What harms businesses will likely hurt its consumers; what harms consumers will likely hurt the firms from which those consumers demand goods and services.”

John Roberts

Stanford University
Profile
Neither Agree nor Disagree 5

John Van Reenen

Massachusetts Institute of Technology
Profile
Agree 6 “A trade war is disastrous for both business and consumers. Trade barriers stunt productivity, good management, innovation, and wages. See Trade Induced Technical Change? The Impact of Chinese Imports on innovation, IT and Productivity (2016).”

Joshua Gans

University of Toronto
Profile
Agree 8 “With global supply chains, tariffs impact again and again on those chains. The cumulative effect can be quite large and force businesses to move bits of production.”

Kathleen Eisenhardt

Stanford University
Profile
Agree 6 “A trade war will be particularly disruptive to businesses as they scramble to reconsider and perhaps reconstruct supply chains. By contrast, consumers will be stuck — they will either pay or not.”

Lori Rosenkopf

University of Pennsylvania
Profile
Neither Agree nor Disagree 6 “The pain will be shared — consumers will see higher prices and business relief will be limited.”

Meghan Busse

Northwestern University
Profile
Agree 6 “Some businesses will suffer concentrated losses — especially businesses that see overseas demand shrink or input costs rise. This will be more disruptive than the diffuse losses suffered by consumers.”

Melissa Schilling

New York University
Profile
Strongly Agree 10 “Firms often face switching costs to change suppliers (e.g., specialized components, contracting costs, etc.) Consumers usually have multiple alternatives and lower switching costs.”

Olav Sorenson

Yale University
Profile
Strongly Agree 9 “Consumers can more easily adjust what they choose to buy than businesses can shift the locations of their supply chains.”

R. Preston McAfee

Economist
Profile
Agree 5 “Factories are hard to start and easy to close, so trade wars cause terrible disruption of supply chains, with very slow recovery for businesses and workers.”

Rajshree Agarwal

University of Maryland
Profile
Strongly Agree 5 “A trade war is going to impact both businesses and consumers — the immediate effect will likely be felt more in business-to-business transactions, but cumulatively, there will be a lasting impact on consumers.”

Rebecca Henderson

Harvard University
Profile
Strongly Agree 9 “The impact of the ongoing trade war will be quite highly concentrated, so it will be felt first and foremost by individual businesses. The impact on consumers will be delayed and diffuse.”

Richard Holden

University of New South Wales
Profile
Agree 7 “In the short run, it will be very disruptive to business (as we have already seen), but eventually that will flow through to consumers.”

Shane Greenstein

Harvard University
Profile
Strongly Agree 9 “Trade wars hurt everyone, but intermediate goods markets are a much larger fraction of the economy than final goods. Uncertainty over price and availability hurts business planning and operations.”

Timothy Simcoe

Boston University
Profile
Strongly Agree 8 “Price increases will be shared between firms and consumers. Most firms will not pass through 100% of a cost increase. But the disruption to global supply chains will be felt more keenly by business.”

Tom Lyon

University of Michigan
Profile
Agree 8 “Consumers will face price increases that will be annoying but not call for fundamental changes to their daily lives. Some businesses will actually be forced out of business — true disruption.”

Yael Hochberg

Rice University
Profile
Neither Agree nor Disagree 8 “Depends on whether the tariffs are on final or intermediate goods and on the consumers’ price elasticity of demand for final goods.”

Bruno Cassiman

University of Navarra
Profile
Did Not Answer

Maryann Feldman

University of North Carolina
Profile
Did Not Answer

Kathryn Shaw

Stanford University
Profile
Did Not Answer

Steve Tadelis

University of California, Berkeley
Profile
Agree “Consumers will be hurt but will re-optimize their purchases to minimize the impact. Businesses face more extreme shocks; some will hurt and others not. Unpredictability is very harmful for business.”

Topics

MIT SMR Strategy Forum

Each month, we pose a question about business, management, technology, or public policy to our panel of academic experts. Here you can see what they think and why.
Learn more about this series

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