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the Federal Government always needed a certain level of revenues. Southern Democrat, oversaw the cutting of the tariff rates roughly in half and eliminating nearly all federal excise taxes in about foreign trade policy should embrace free trade or protectionism.
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In the figure below, we also show a range of higher tariff burdens that reflect some impact on prices of domestic goods see Appendix note 6 for details. Figure 1 Tax burden by decile of before-tax household income under different pass through assumptions. However, the burden is substantially higher for poor households than for the richest relative to their income. The following figures demonstrate the regressivity of tariffs by presenting the tariff burden across income deciles as a percentage of after-tax income and as a percentage of non-housing expenditures. The CEX suffers from well-known data quality issues with respect to the ratio of consumption to income for very low-income households.
Tariff in United States history - Wikipedia
For this reason, the estimate of the tariff burden relative to after-tax income for the bottom decile should be interpreted with caution. Regardless, the broad pattern of regressivity is clear. Figure 3 Tariff burden relative to expenditures excluding mortgage, rent, and utilities. These conservative estimates of the direct tariff burden are large compared to other recent and hotly debated tax policies.
Tariff in United States history
Economists often think of tariffs in a stylised way, as though they are applied uniformly to broad swaths of the economy, or simply targeted to protect only the most deserving or vulnerable sectors. In fact, there is enormous variation in tariffs at the disaggregate level for reasons that sometimes are due to careful targets, but alternatively may favour some groups or products over others for reasons that are not always obvious. For example, for a family doing their back-to-school shopping, backpacks of man-made fibres carry tariffs of The tariff code thus penalises students more for using ballpoint pens and mechanical pencils than markers.
Meanwhile, there are no tariffs applied on imports of cross-country snow skis, sailboards, or archery equipment USITC Within consumption goods, categories like apparel and many types of home furnishings and other household goods, tariffs are sometimes higher on cheaper varieties, making tariffs on these goods more regressive than our benchmark estimates suggest. A look at disaggregated US import data reveals many goods categories with unit values a proxy for prices that have a strong negative correlation with statutory tariffs, implying lower-cost goods often face higher tariff rates.
Goods are grouped at the HS 4-digit level and correlations are computed across HS 8-digit items. For the HS 4-digit categories classified as consumer goods by the United Nations that have a calculated correlation between tariffs and prices, the tariff scale decreases in prices for roughly half, and the list of categories with strong negative correlations is extremely wide-ranging across the activities of daily life. These goods include adult, child, and infant apparel; waterproof footwear; home furnishings and bedding; olive oil; processed tomatoes; wine; bicycles; camping gear; helmets and protective sporting headgear; small kitchen appliances and humidifiers; clocks, tableware and kitchenware; crafted wooden boxes including caskets.
Sometimes the variation in tariffs just appears to be an artefact, a legacy left from decades of many rounds of negotiations. Chapters 42, 61, and Tariffs on nappies made with paper pulp or cellulose are duty free due to the sectoral agreement on pulp and paper products in the Uruguay Round, while tariffs on nappies made with cotton cloth or other textile fibres can face tariffs ranging from 2. Anderson and Neary and , Kee et al. Looking across demographic groups, the tariff burden is highest for families with children, particularly single parents. The category which includes both feminine hygiene products and diapers, HS , has an average statutory MFN tariff of 7.
Thus, the tariff burden among single parents may be even higher for single mothers than for single fathers. Based on this initial analysis, it appears tariffs are imposed in a regressive manner — in part because expenditures on traded goods are a higher share of income and non-housing consumption among lower income households, but also due to explicit regressivity within categories.
The analysis highlights an underexplored aspect of trade policy and its effects and leaves open a path for subsequent research. More research on this area would be welcome — and the new dataset created for this analysis hopefully will help further some of that research. The matching of the tariff lines to consumption categories allows us to calculate the tariff burden across groups. The dataset with aggregated consumption categories is available publically for researchers here , and the pre-publication tables containing the more detailed categories used in the crosswalk are available upon request from BLS.
We encourage other researchers to use these data and or extend and improve the match process. Tariff data is available at the Harmonized System HS code level, which is often more granular e. Crustaceans, molluscs and other aquatic invertebrates, prepared or preserved than the CEX category e. Canned Fish and Seafood.
The Economic Effects of Trade Protectionism
For each CEX category, we calculated an average tariff rate, dividing total tariffs collected for goods in the expenditure category by total imports of those goods. This is an effective tariff rate. The CEX is a detailed survey of household expenditures with both quarterly and annual components. The effective tariff rate is generally lower than an average of statutory tariff rates or the true economic burden of tariffs because buyers tend to substitute away from goods when tariffs raise the price too much relative to other options.
Using effective rates will systematically underestimate the full burden of tariffs on all households, since it adds only the cost of tariffs on goods Americans actually buy, not on goods they might have preferred to buy had there been no tariff. Effective tariff rates will not include any loss to consumers arising from the tariff-induced unavailability of this good or increased prices that result from reduced competitive pressures on rival producers.
Businesses selling goods produced outside the US have the option of passing on any tariffs they pay on goods they bring into the US to consumers by raising prices. Foreign firms may absorb part of the tariff burden by lowering their own markups at the factory gate to keep prices competitive after the tariff is applied, so the final tariff incidence may fall in part on both producers and buyers or consumers in the US. In practice, the possibility that some portion of the tariff is borne by the foreign firm is not relevant for our analysis of the distributional impact as it would simply raise or lower the total tariff burden, not change its distribution.
Since consumers buy a mix of imported and domestic goods, we apply the tariff rate only to the share of goods that are imported, provided to us for key categories of goods by the Office of the United States Trade Representative USTR. Because domestically-produced goods are substitutes for imported goods subject to tariffs, we also present broader analyses that assume some spillover of price impacts to domestic goods. The difference from total tariff revenue reflects both the inability to match some goods, measurement error, and the fact that not all tariff revenue is directly collected on consumer goods.
In particular, our analysis will not reflect the fact that tariffs on intermediate goods may raise the prices of downstream domestic consumer goods. In addition, as our tariff burden calculation applies the effective tariff rate to domestic expenditures, not import values, it will include retail markups or sales taxes which would increase the measured burden relative to tariff revenue.
On net, though, the tariff burden we distribute across groups is quite close to total tariff revenue on consumer goods, suggesting it is a reasonable proxy for the direct burden. Elmendorf, D W et al. Here, President Herbert Hoover signed a tariff bill that raised taxes on many agricultural products and goods causing retaliation by other nations. While the act was intended to protect American companies and industries, it increased tariffs by an average of 20 percent on more than 20, imported products and goods.
This ultimately caused global trade to drop by 67 percent and American exports to fall as much as 75 percent. Arthur Guarino is an assistant professor in the Finance and Economics Department at Rutgers University Business School teaching courses in financial institutions and markets, corporate finance, investments, and financial statement analysis. He writes articles dealing with finance, economics, and public policy. Strong fixed investment and spillovers from the expansion in the U. Over the next few quarters, Central America and the Caribbean should continue to benefit from the booming U.
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