Price deflation and real tariff rates: the United States, 1903 to 1940

This paper studies the time series and cross-sectional behavior of tariffs during the prewar period in a manner that recognizes their dual role: as an instrument of commercial policy and as an important source of government revenue. The fact that these objectives may be reinforcing or conflicting has made a critical difference in the choice of tariff rates across commodities and over time. Another interesting feature of prewar tariffs is that most import duties were specific, charging a nominal amount of domestic currency per physical unit imported. Existing historical accounts focus on dates of legislative change and miss the cyclical variation in tariff rates that results from the impact of changing prices on the real value of specific duties. These price effects are quantitatively important during the 1900 to 1940 period. For example, the Fordney-McCumber Act of 1922 which has been interpreted as very protectionist simply corrected the erosion of real tariff rates occurring during the inflation of World War I. The opposite is true of the infamous Smoot-Hawley Tariff Act; the deflation of the 1930s added considerably to the legislated increases. The implications of these findings for modelling the role of Smoot-Hawley in the Great Depression is also discussed.