The Modeling Framework

The EY TTMT provides a comprehensive quantification of the impacts of import tariffs at the industry and company level. Import tariffs can affect consumer and producer prices by altering the relationship between domestic and world prices. As such, they affect both consumers' real income (i.e. purchasing power) and the cost of domestic production by raising imported intermediate input prices and imported final good prices as well as prices of comparable domestic goods produced locally.

The EY TTMT is a model in the vein of special-purpose partial equilibrium models with sufficient structural features of an industry's production and its relationship with other industries to capture key areas that can be perturbed by import tariffs.1 Its focus is on companies' payments to other businesses in the context of interconnected multi-regional trade flows.

Its integrative modeling framework combines seamlessly: 1) input-output modeling, 2) pass-through modeling, and 3) exchange rate adjustments.

1) Input-output modeling allows direct and indirect tracing of effects using BEA's make and use tables so that industry linkages and import sources are explicitly identified and accounted for.

2) Pass-through modeling of bilateral exchange rate changes to border prices and border prices changes to domestic prices enables calculations of how much tariff adjustment is borne by producers or by consumers.

3) Finally, bilateral exchange rate adjustments between the US and its trading partners due to US import tariffs and possible retaliatory tariffs allow quantifications of changes in bilateral exchange rates needed to offset any tariff impact.

TTMT Diagram

Key Features

A schematic view of the EY Tariff-Trade Modeling Tool is provided in the Model Diagram section. The EY Tariff-Trade Modeling Tool is intended to provide high-level quantitative estimates of the following types of tariff impacts for a given company:

  • Direct foreign payments: The rise in direct payments due to tariffed imported input prices from foreign suppliers.
  • Indirect foreign payments: The rise in indirect payments due to input prices if tariffed imports are part of supply chains.
  • Domestic price increase: The increase in local price due to the production of import competing goods (i.e. import-substitution).
  • Pass-through from border prices to domestic prices: The proportion of tarffis that will be passed to consumers or absorbed by producers based on factors such as market power, the shares in a given industry, and distribution margins.
  • Exchange rate adjustments: Changes in bilateral exchange rate necessary to compensate partially or totally increases in prices associated with the tariffs.

The EY TTMT allows clients to quantify and communicate the effects of tariffs to their board and other relevant stakeholders. The Tool can be very useful to corporations and partnerships and can be easily adpated to different levels of industry granularity (e.g., different SIC code digits).

1 Narayanan, Badri G., Ciuriak, Dan, and Singh, Harsh Vardhana. April 2015. Quantifying the Mega-Regional Trade Agreements: A Review of the Models. The UK Department for International Development (DFID).s