Title: Tariffs and Monetary-Fiscal Interactions with Low Interest Rates

Speaker: Su Dongling, Associate Professor, School of Business, Shanghai University of Finance and Economics; Researcher, Shanghai Institute of International Finance and Economics; Ph.D. in Economics, Boston University, USA. He has received funding from the Shanghai Pujiang Talent Program and the Shanghai Baiyunlan Talent Program (Young Project). His main research directions are macroeconomics, financial economics, and public finance, focusing on issues such as asset bubbles and monetary-fiscal policy interactions. His papers have been published in journals such as "American Economic Journal: Macroeconomics", "International Economic Review", "Journal of Public Economics" and "Economic Theory". He presides over one Youth Program of the National Natural Science Foundation of China.

Abstract: This paper constructs a two-country New Keynesian open economy model to study the interaction between tariffs and liquidity supply. In the model, entrepreneurs face uninsurable heterogeneous risks and working capital constraints, which causes government bonds to generate a premium due to their liquidity services. The model generates sustainable permanent trade deficits with negative net foreign asset positions for countries that supply liquid government bonds. We use this framework to study the international transmission of tariff shocks. Unilateral tariffs reduce domestic trade deficits but trigger stagflation domestically, while causing deflation abroad and weakening demand for domestic bonds. The "safe asset" status of domestic bonds mitigates the stagflationary effect of tariffs domestically but amplifies the recessionary spillover effect abroad. The transmission of tariff shocks is only weakly affected by monetary policy but highly sensitive to fiscal adjustments. Importantly, under debt rollover policies, liquidity shortages caused by tariffs may dominate stagflationary pressures, leading to persistent deflation and output contraction in both countries.

Date & time: 29 October 2025, 10:00-12:00

Venue: B321, Zhixin Building, Central Campus, Shandong University