U.S.-EU banana war: Implications of retaliatory tariffs on Pecorino cheese

Because of the European Union's failure to adhere to the dispute settlement panel's findings in the banana dispute, the United States imposed prohibitive tariffs (100% ad valorem) on imports of selected EU products, including Pecorino cheese, as a retaliatory trade policy permitted under WTO rules. This paper illustrates the economic impact of U.S. retaliatory policy. The estimated loss in consumer surplus for Pecorino cheese users was $4.96 million per year. As a result of U.S. policy, tariff revenue and deadweight loss were $1.86 and $3.10 million, respectively. Italian producers lost an estimated $8.55 million in revenue due to reduced exports to the United States, nearly twice the welfare loss experienced by U.S. consumers.