Effective Protection with Global Value Chains
IMF Economic Review, accepted for publication
with E. Blanchard and M. Boice
Abstract: The effective rate of protection (ERP) -- a widely-used tool for evaluating the net impact of input and output tariffs on individual sectors -- rests on theoretical foundations that predate the rise of global value chains. In this paper, we develop an updated ERP for policy analysts, with two core elements. First, we introduce a new ERP concept that measures how tariffs shift derived demand for real value added at the sector level; it has an intuitive interpretation as the effective subsidy to buyers of sectoral value added that replicates the demand effects of the tariff structure. Second, we demonstrate how to compute this index accounting for global value chain linkages. The result is an ERP for the GVC age, in which effective protection depends on the structure of value chains across countries and sectors, and the structure of all tariffs applied globally. Applying the framework, we analyze how United States tariff changes in 2025 altered effective protection in the United States and abroad.
Paper prepared for the IMF Annual Research Conference. Link to panel discussion.
This paper is a revised version of NBER Working Paper 34670. Prior draft: October 2025 Conference Draft with conference slides.