Tariff

Question 1

Historic Trade Policy?

Answer 1

Post repeal of corn-laws (1846) Britain was the paragon of free trade

Question 2

1914 and onward trade policy?

Answer 2

WW1 led to loss of markets and the collapse of global trade.
First movements away from free trade (Mckenna duties on inelastic demand luxuries in 1915: revenue raising), Safeguarding of industries act 1921

Question 3

General Tariff imposition?

Answer 3

GD and Cons into gov 1931
Import Duties Act 1932: Min of 10% except on exemptions, such as staple food
Set up Import Duties Advisory Committee for further tariffs

Question 4

Imperial preference was solidified where and when

Answer 4

Ottowa conference 1932

Question 5

What is EPR

Answer 5

Ex ante: Compares forecasts of where resources should be influenced to flow by tariff assuming ceteris paribus.
Takes into account nom tariff rate of inputs and outputs. Resources should flow to most protected

Question 6

Capie EPR findings? (year)

Answer 6

1978
Negative correlation of EPR and growth.
Main drivers of growth (building at -7.2% and iron/steel at 7.8% EPR) harmed by tariff
Thus, conclude that recovery and growth of these industries were in spite of tariff

Question 7

Criticisms of Capie: KSW

Answer 7

Kitson, Solomou, Weale (1991): Assumes raw materials as only input, distorting EPRs. Now, iron/ steel at 34%

Question 8

Criticisms of Capie: FP

Answer 8

Foreman Peck (1981):
Must also know PED. When we consider this, we find that iron/steel actually benefitted third most of all industries analysed.
Further, consider General Eqm: Building may have been helped by income effects!

Question 9

What is Import Replacement ratio?

Answer 9

(Change in Output - Change in X)/(Change in M)

Value closer to 1 implies closer to perfect import substitution

Question 10

Richardson IRR?

Answer 10

Richardson (1967): IRR 1930-35: Newly prot=3.0, but 2.0 in others.
Suggests tariffs did not lead to import substitution!

Question 11

Criticism of Richardson: KS

Answer 11

Kitson and Solomou (1990):
R ignores initial conditions! Compare change in growth 1924-30 and 1930-35: NP stagnant to 3.8%, others: no significant change.
This increase in output was due to productivity growth, not employment

Question 12

DiD?

Answer 12

Lloyd and Solomou (2020): DiD=4.2% and significant for >10% level and positive, but not significant for 10% level.
However, R^2 value low so can’t explain all of variation!

Question 13

SR industry effects?

Answer 13

Broadberry and Crafts (2012) and Horsewood et al (2009)

Short run positive, but more modest GDP effects on GDP/ productivity

Question 14

Long run effects?

Answer 14

• Improved productivity of protected has significant reversion in 1935-48 (Broadberry and Crafts 2012)
• We never see full return to pre Depression levels of trade

Question 15

What is theory of second best?

Answer 15

In the context of additional distortions, additional distortions may be welfare improving

Question 16

Tariffs in other countries?

Answer 16

KS 1990: Germany, Italy, France avg tariff of 40% in 1931

Question 17

Why is partial eqm result not satisfactory?

Answer 17

Takes the fall in global demand as a given!
In fact, Albers (2019) finds trade multipliers of 0.7-1.2 in GDP for small, open economies at this point. Thus, major role for tariffs driving this output contraction!

Question 18

Conclusion of gen eqm tariffs

Answer 18

Even in SR, the positive effect of tariffs has been overstated.

Question 19

Why imperial preference/trading blocs?

Answer 19

Attempt to mitigate the trade collapse: Down 30% 1929-32 and still 10% below 1929 level in 1938

Question 20

Changing proportions of trade with empire?

Answer 20

Glickman 1947: %imports from Empire 30 to 40% 1931-38

Question 21

Imperial preference pre 1932?

Answer 21

Mckenna duties 1/3 lower and 1931 Emergency tariff did not apply to empire

Question 22

Agreements of 1932 Ottowa Conference?

Answer 22

Exempt Empire from tariff and never revoke GT without consent of Empire.
Also, increased protection for what empire exported: agriculture/raw materials

Question 23

Historical stance on imperial preference?

Answer 23

Policy fairly non-impactful: trade with empire as % of total trade was rising anyway!

Question 24

Gravity model of trade imperial preference?

Answer 24

Eichengreen and Irwin 1995:
Regression including imperial preference variables (same currency/trading bloc)
Finds: magnitude of empire importance up in 1930s indicating trade creation of policy, with no effect of other groups (no trade diversion)

Question 25

Did empire benefit?

Answer 25

Hicks et al (2013): Britain benefited, but empire did not

Question 26

Extent of impact of IP?

Answer 26

de Bromhead et al (2017)
Estimates using elasticities of trade wrt tariffs
Counter-factual: No change in policy: Empire % of trade would have = 35% of trade, not 40%
Policy accounted for 50-70% of trade with empire increase

Question 27

Did the policy backfire post WW2?

Answer 27

Solomou: UK cut itself off from the growing intra-European trade 50s/60s.

Question 28

Could UK have changed IP policy post WW2

Answer 28

Arguably, yes.
Although would take time to adjust trading routes.
Also, would involve revoking GT, which, under Ottowa Conference rules, would require consent of dominions!