The European Central Bank has published a working paper examining how US import tariffs transmit through domestic production networks and affect US manufacturing sectors. Using a panel of 71 manufacturing industries from January 2004 to January 2020, the paper finds that tariffs reduce sectoral output through two main channels. Tariffs raise input costs for industries that buy from tariff-hit sectors, creating negative supply shocks, and they also cut demand for industries that supply customers whose production falls after facing higher tariff-related costs. The paper finds that a one percentage point increase in the average input tariff rate raises producer prices by up to 0.8% after five months and lowers production by around 0.8% after eight months. Tariffs on a sector's own goods also behave like a supply shock rather than a protective measure, with prices rising on impact and output declining after a delay, and the paper reports no evidence of a protective effect for domestic industry at the sectoral level studied. Via forward linkages, a one percentage point increase in tariffs faced by customer sectors lowers a supplying industry's output by about 1% and producer prices by up to about 1%, indicating that demand-side spillovers partly offset the inflationary effects of tariffs. The analysis further finds that these effects are driven mainly by inter-industry rather than intra-industry linkages.
European Central Bank2026-07-24
European Central Bank publishes working paper finding US import tariffs reduce manufacturing output through production network spillovers
The European Central Bank published a working paper finding that US import tariffs reduce manufacturing output by spreading through domestic input-output linkages. Tariffs raise costs for downstream users of tariff-hit inputs and reduce demand for upstream suppliers when customer sectors cut production. The paper also finds no evidence that tariffs protect domestic industries at the sectoral level studied.