Tariffs, Global Value Chains, and the Incidence of Protection: Evidence from US Automobiles

May 22nd, 2026

In many modern industries, firms compete in differentiated-product markets while relying on complex global value chains for intermediate inputs. In such settings, trade policies such as tariffs on vehicles and parts operate not only through consumer substitution and firm pricing, but also through firms’ cost structures and sourcing decisions. We develop a structural model of the U.S. automobile market that integrates random-coefficients demand, multiproduct firm pricing, and a flexible supply-side framework in which shocks to the cost of imported parts transmit imperfectly into manufacturers’ marginal costs. The model is disciplined by novel model-level data on imported-parts exposure and exploits exchange-rate variation to identify cost pass-through. Our counterfactual analysis quantifies the effects of alternative tariff policies on prices, profits, and welfare.