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Misallocation and Productivity Effects of the Smoot-Hawley Tariff

Author

Listed:
  • Eric Bond

    (Vanderbilt University)

  • Mario Crucini

    (Vanderbilt University)

  • Joel Rodrigue

    (Vanderbilt University)

  • Tristan Potter

    (Vanderbilt University)

Abstract

Using a newly created microeconomic archive of U.S. imports at the tariff-line level for 1930-33, we construct industry-level tariff wedges incorporating the input-output structure of U.S. economy and the heterogenous role of imports across sectors of the economy. We use these wedges to show that the average tariff rate of 46% in 1933 substantially understated the true impact of the Smoot-Hawley (SH) tariff structure, which we estimate to be equivalent to a uniform tariff rate of 70%. We use these wedges to calculate the impact of the Smoot Hawley tariffs on total factor productivity and welfare. In our benchmark parameterization, we find that tariff protection reduced TFP by 1.2% relative to free trade prior to the Smoot Hawley legislation. TFP fell by an additional 0.5% between 1930 and 1933 due to Smoot Hawley. We also conduct counterfactual policy exercises and examine the sensitivity of our results to changes in the elasticity of substitution and the import share. A doubling of the substitution elasticities yields a TFP decline of almost 5% relative to free trade, with an additional reduction due to SH of 0.4%. (Copyright: Elsevier)

Suggested Citation

  • Eric Bond & Mario Crucini & Joel Rodrigue & Tristan Potter, 2013. "Misallocation and Productivity Effects of the Smoot-Hawley Tariff," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 120-134, January.
  • Handle: RePEc:red:issued:12-98
    DOI: 10.1010/j.red.2012.11.002
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    2. Douglas A. Irwin, 2019. "U.S. Trade Policy in Historical Perspective," NBER Working Papers 26256, National Bureau of Economic Research, Inc.
    3. Yu, Chin-Hsien & Wu, Xiuqin & Lee, Wen-Chieh & Zhao, Jinsong, 2021. "Resource misallocation in the Chinese wind power industry: The role of feed-in tariff policy," Energy Economics, Elsevier, vol. 98(C).
    4. Lee E. Ohanian, 2016. "The Great Recession in the Shadow of the Great Depression: A Review Essay on “Hall of Mirrors: The Great Depression, The Great Recession and the Uses and Misuses Of History”," NBER Working Papers 22239, National Bureau of Economic Research, Inc.
    5. Diego Restuccia, 2013. "factor misallocation and development," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    6. Jacks, David S., 2014. "Defying gravity: The Imperial Economic Conference and the reorientation of Canadian trade," Explorations in Economic History, Elsevier, vol. 53(C), pages 19-39.
    7. Correa, Juan A. & Gómez, Marcos & Luengo, Andrés & Parro, Francisco, 2021. "Environmental misallocation in the copper industry," Resources Policy, Elsevier, vol. 71(C).
    8. Neira, Julian, 2019. "Bankruptcy and cross-country differences in productivity," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 359-381.
    9. Kris James Mitchener Author e-mail: kmitchener@scu.edu & Kirsten Wandschneider Author e-mail: kirsten.wandschneider@univie.ac.at & Kevin Hjortshøj O’Rourke Author e-mail: akevin.orourke@nyu.edu, 2021. "The Smoot-Hawley Trade War," Working Papers 20210061, New York University Abu Dhabi, Department of Social Science, revised Mar 2021.
    10. Dardati, Evangelina & Saygili, Meryem, 2020. "Aggregate impacts of cap-and-trade programs with heterogeneous firms," Energy Economics, Elsevier, vol. 92(C).
    11. Dong Cheng & Mario J Crucini & Hyunseung Oh & Hakan Yilmazkuday, 2019. "Early 20th century American exceptionalism: Production, trade and diffusion of the automobile," CAMA Working Papers 2019-58, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    12. Hansen, G.D. & Ohanian, L.E., 2016. "Neoclassical Models in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2043-2130, Elsevier.

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    More about this item

    Keywords

    Hawley-Smoot tariff; Great Depression; Commercial policy; Productivity; Misallocation; Macroeconomic inefficiency;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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