The Behavior of U.S. Tariff Rates

Abstract

The recent large deficits in the US trade balance have led to a rise in protectionist sentiment in the US Congress. In light of the recent literature on tariffs and trade balance, it is important to ask whether the current US policy measures aimed at the trade deficit will be viewed as temporary or permanent. This issue is examined by asking what a rational time series analyst would infer about the degree of permanence of US tariffs from their history over the period 1821-1985. Tests of whether US tariff rates follow a random walk and thus are permanent are examined. It is shown that the null hypothesis that US tariff rates follow a random walk cannot be rejected for the period prior to the imposition of the income tax, 1821-1917. This indicates that, for this period, changes in tariff rates were permanent. For the period following the imposition, 1918-1985, the empirical results do not support the random-walk specification; nevertheless, tariff changes are found to be permanent.