A test of tariff endogeneity in the United States

Abstract

Public-choice analysis provides a positive theory of tariff endogeneity that suggests that tariffs are created in the political system in response to certain economic factors. Standard analysis of tariffs examines the impacts of these policies on other economic variables. Any attempt to model the economics of tariff policy that fails to recognize that there are both causes for and impacts of tariffs may be misspecified. In this article a vector autoregressive model is employed to explore the causes and impacts of tariffs, because such a model does not require any stringent assumptions regarding exogeneity and endogeneity. Results give strong evidence for the theory of tariff endogeneity with endogeneity stemming from inflation, real gross national product (GNP), and unemployment, in particular. On the other hand, while economists find a casual impact of tariffs on inflation and the trade balance, there is no evidence supporting the hypothesis that tariffs directly Granger-cause changes in real GNP or unemployment in the U.S. These hypothesis, however, have been tested in an economy where international trade plays a relatively minor role.