Custom Search

Solomou, Tariff


1.         Mckena duties 1915

2.         safeguarding of industries 1921 - new industries

3.         emmergency tariff (non-essential imports) 1931

4.         Import Duties Act 1932

All industries except for already safeguarded

Tariff advisory comitee took applications for further tariffs and the rate actually rose.

Extetntions to the basic dead-weight loss theory

1.         Theory of the second best

Asume the world is already distorted. Imposing another distortion could actually shift it to more equilibrating way. Everyone raised tariffs in1931 and UK tariffs were on of the lowest. Co-ordination was not feasible

2.         Adjustment costs

3.         Optimum Tariff

If a country has market power (large country). This will shift world prices down. This will benefit country's terms of trade

4.         Increasing returns to scale

A tariff may lead to a rise in investment. Tariff jumping - other countries invest to your country.

5.         Tariff is a macroeconomic policy tool

maybe needed for BoP crises in fixed exchange rates

Analysing the Effects of The General Tariff

1.         Import substitution studies (Richardson)

IRR=(dQ-dX)/dM. A succesful ratio would tend towards unity. He does not find difference between newly protected and non-newly protected industries. Non-newly is closer to unity. We also have data on 1924. Non-newly protected are the iron and textiles.  They were doing badly during 20-s. But they started growing a lot in 1930-s. Non-newly protected is seeing a comprabale growth throughout the period.

2.         Effective protection rates

Capie did something, but wrongly.

Building is negative. But not that important

Iron and steel was causing revival. Iron is with very low tariff in Capie.

3.         Macroeconomic analysis of tariffs

There is no fixed exchange rate. In theory tariff should not work in fixed exchange rate, but it was not fixed.

Impact effects important - crowding out. But again with depreciated effects had big effects. However, then you get a exchange rate crowding out.

Income effects need to be taken account effect

1.         When we have flexible rates

IS curve shifts out in the short run. However, exchange rate starts appreciated. Price level will rise as well. There will be inflation.

This might not be completely right. In 1932 tariff and devaluation lead to a big competitiveness shift. There is evidence that this effect is persistent. Import propensity stays low throughout 30-s (hysteresis). This allows economy to equilibrate in a higher income level.

Summary of effect

1.         Building is getting taxed, but benefits from the income effects.

2.         We need to disagregate data (effective protection rates). Some sectors lose, some win.

3.         Empire preference was used. Creating mkts in empire, because world economy was depressed. It turned out to be wrong - Europe grew a lot faster and England could have grown faster.



1.         Import substitution occurs (reject Richardson)

2.         Long-Run Effects on Industry Structure (New life to old industries). Long term effects not maybe benefit

3.         Macroeconomic effects are not standard textbook. Impact has hysteresis effects

4.         Trade Regionalisation - around empire, it did succeed in creating a market, and exports did not fall that fast.

Click here to see more economics,politics and school papers from me