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AVE Tariffs are a Misleading Measure of Tariff Policy

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Listed:
  • Andrew Greenland
  • James Lake
  • John Lopresti

Abstract

We show that changes in ad valorem equivalent (AVE) tariffs are insufficient to sign the effect of tariffs on economic outcomes. Using a novel database of 1972-1988 US tariffs, we decompose aggregate AVEs into statutory and endogenous components. Pre-1979, inflation creates an “accidental liberalization” by eroding specific tariffs, while import composition changes mask 1980s Tokyo Round tariff cuts. Overall, as much as 70% of the variation in aggregate AVE changes is driven by mechanisms other than statutory tariff changes. Embedding specific tariffs in a hat algebra framework, we show that the accidental liberalization accounts for half of 1972-1988 AVE changes. The resulting impact on imports and price indices depends on whether price movements were driven by import demand or export supply shocks. If driven by export supply shocks, the accidental liberalization is associated with falling imports and rising import price indices.

Suggested Citation

  • Andrew Greenland & James Lake & John Lopresti, 2025. "AVE Tariffs are a Misleading Measure of Tariff Policy," NBER Working Papers 34429, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34429
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F02 - International Economics - - General - - - International Economic Order and Integration

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