US industrial coverage through the presidency of Donald Trump led to renewed curiosity within the macroeconomic results of commerce tariffs. It has turn into frequent to make use of tariffs and different restrictions on worldwide commerce in an try to spice up the home financial system. One issue affecting the affect of tariffs is the response of native foreign money after tariffs are imposed. The results of tariff modifications could be eased or overturned if the native foreign money appreciates and prevents the relative costs of native and international items from adjusting.
The behaviour of the trade price following a rise in tariffs has not been totally evaluated empirically due to lack of knowledge and challenges in methodology. Our evaluation focuses on the current renegotiation of the North American Free Commerce Settlement (NAFTA). Throughout this era, a key supply of reports about tariffs was public communication by the US president—usually within the type of tweets. We use the US president’s tweets to quantify how potential and precise tariffs on Canada and Mexico have an effect on their bilateral trade charges with the US.
Our outcomes present that the anticipation of upper tariffs on items imported from Canada led on common to a 0.022 p.c appreciation of the US greenback relative to the Canadian greenback inside 5 minutes of the publication of a tweet. Within the case of Mexico, the common impact was twice as massive—a 0.049 p.c appreciation of the US greenback. We discover that these numbers are economically and statistically vital.