Tariff Incidence:
Evidence from U.S. Sugar Duties, 1890-1930
Douglas Irwin
Dartmouth College & NBER
Who bears the burden of import tariffs?
• Charles Bickerdike, EJ (1906)
Tariff incidence: what do we know?
– Computational Evidence
• CGE models imply large terms of trade effects
• Costinot & Rodriguez-Clare (2013) – US, Ireland: 20%
– Elasticity Evidence
•
•
•
•
Broda, Limão, & Weinstein (AER 2008)
Correlation of tariffs and export supply elasticities
Belarus, Latvia, Lebanon, Lithuania, Ukraine?
Paraguay and Algeria have more market power than China and
Russia? Optimal tariffs of 200-300%?
• Olarreaga et al 2013 – optimal tariffs 4%
– Empirical Evidence
• Winkelmann & Winkelmann (JIE 1998)
• New Zealand is a small country
Previous U.S. Studies
Study
Goods
Data
Pass-through to
consumer prices
Poterba (1996)
3 goods
Quarterly
≈ 100%
Besley & Rosen (1999)
12 goods
Quarterly
> 100%
Kreinin (1961)
1956 GATT Round
Annual
≈ 50%
Feenstra (1989)
2 goods
Monthly
60% for trucks
100% for motorcycles
Sales Taxes
Tariff Changes
Why pre-1930?
• Unilateral tariff changes (no bargaining)
• Large tariff changes (up & down)
• No exchange rate variation (gold standard)
Why sugar?
• U.S. plausibly a large country
– 20-25% of world consumption
– Cuba major supplier (20-30% of US sugar)
– Cuba depends on US market (exports 95%+ to US)
• Unique price data
– One place: New York City
– Landed and wholesale price of 96° raw sugar
– High frequency: weekly, daily
U.S. share of world sugar consumption
30
25
20
15
10
5
0
1895-99
1900-04
1905-09
1910-14
1915-19
1920-24
1925-29
1930-34
Market structure
• Cuban supply
– Perfectly competitive
• US demand
– Sugar refiners in New York
– Highly competitive oligopoly
• Genesove & Mullin (Rand 1998)
New York sugar refining
Ad valorem tariff on raw sugar
120
ad valorem rate
100
80
60
40
20
0
1890
1895
1900
1905
1910
Weekly sugar prices
7
cents per pound
6
5
4
3
2
1
1890
1895
1900
Cuba
1905
New York
1910
Estimation approach
• Weekly
• ∆ log 𝑝𝑖 = 𝛼 +
5
𝑗=1 𝛽𝑗 ∆log(1 +
τ)𝑗 + 𝜖
– i = landed price, customs-cleared price
– Plus month, year fixed effects
• Monthly
– Control for wholesale prices, industrial production
1891
7
6
cents per pound
5
4
3
2
New York price
1
Cuban price (c.i.f.)
0
26
Feb
5
12
17
26
Mar
2
7
16
Apr
1891
23
30
1894
4
New York price
cents per pound
3.5
Import price (Cuba, c.i.f.)
3
2.5
2
2
9
16
23
30
Aug
6
13
Sep
1894
20
1897
4
3.5
New York price
Import price (Cuba, c.i.f.)
3
2.5
2
1.5
24
June
1
8
15
22
July
29
5
11
Aug
1897
19
1903
4
3.5
3
2.5
2
1.5
New York price
1
Import price (Cuba c.i.f.)
0.5
0
3
10
17
Dec-03
24
31
7
14
21
Jan-04
28
1914
3.5
3
New York price
Import price (Cuba, c.i.f.)
2.5
2
1.5
29
Jan
5
11
19
26
5
Feb
12
19
Mar
1914
26
2
Apr
Daily prices (1914)
4
3.5
3
2.5
2
1.5
New York price
1
Import price (Cuba c.i.f.)
0.5
0
19
20
23
24
Feb
25
26
27
2
3
4
Mar
5
6
Summary
Year
Tariff Change
Incidence of Tariff Change
Domestic Prices
Import Prices
1890
↓
96%
4%
1894
↑
42%
59%
1897
↑
36%
64%
1903
↓
83%
22%
1913
↓
100%
0%
Asymmetric response
• Common Finding
– Exchange rates (Nakamura & Zerom RESt 2010)
– Gasoline (Borenstein, Cameron, Gilbert QJE 2007)
– All prices (Peltzman JPE 2000)
• Possible explanations
– Seasonality
– Inventories
– Pricing-to-market
• Sugar: not durable or storable but shiftable
Monthly Imports
350000
300000
250000
200000
150000
100000
50000
0
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
Asymmetric demand response
250
percentage change from previous yaer
200
150
1891
100
1894
1897
1903
50
1914
0
-3
-50
-100
-2
-1
0
1
2
3
Check using monthly data
• Unit values (only import price)
• Higher level of aggregation
• Tariff reduction – consistent with no impact
• Tariff increase – unclear, less precision
Monthly import prices
(different series)
120
Price at Month of Tariff Change = 100
115
110
105
1891
100
1894
95
1897
90
1903
1914
85
80
75
70
-3
-2
-1
0
1
2
3
Pass-through to
granulated sugar prices
• Only significant pass-through is in 1891
• Lower frequency price changes
• Absorbed through markup adjustment?
Interwar period
• Three tariff increases (1921, 1922, 1930)
• Philippines granted duty free access
• Trade diversion → terms of trade loss for Cuba
• Chang & Winters (AER 2002)
Ad valorem tariff on raw sugar
200
ad valorem rate
160
120
80
40
0
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
Weekly sugar prices
9
8
cents per pound
7
6
5
4
3
2
1
0
1920
1921
1922
1923
1924
Cuba
1925
1926
1927
New York
1928
1929
1930
1921 tariff
increase of 0.6 cents per pound
5.5
5
4.5
Increase of 0.2 cents
New York
4
Cuba
3.5
3
2.5
Mon 5/23 Tues 5/24 Wed 5/25 Thur 5/26
Fri 5/27
Mon 5/30 Tues 5/31 Wed 6/1
Thurs 6/2
Fri 6/3
1922 tariff
increase of 0.1648 cents per pound
5.5
5
4.5
From 4.61 cents to 4.77 cents
4
NY
Cuba
3.5
3
2.5
2
Mon 9/18 Tues 9/19 Wed 9/20 Thurs 9/21
Fri 9/22
Mon 9/25 Tues 9/26 Wed 9/27 Thur 9/28
Fri 9/29
1930 tariff
increase of 0.2352 cents per pound
4
3.5
3
2.5
Decline of 0.23 cents
2
1.5
1
0.5
0
Thurs 6/12 Fri 6/13
Mon 6/16 Tues 6/17 Wed 6/18 Thurs 6/19 Fri 6/20
Mon 6/23 Tues 6/24 Wed 6/25 Thurs 6/26 Fri 6/27
Effect on Sugar Market in 1930
Imports
(billions of pounds)
(import share in parenthesis)
Average import price
(per pound)
Cuba
Philippines
Cuba
Philippines
Pre-Smoot-Hawley
5.52
(77%)
1.56
(22%)
1.8 cents
3.4 cents
Post SmootHawley
4.81
(74%)
1.73
(27%)
1.2 cents
3.0 cents
-12.8%
+10.5%
Percentage
Change
-33%
-11%
Price gap:
Philippine-Cuban Sugar
180
160
Smoot-Hawley →
140
120
100
80
60
1924
1925
1926
1927
1928
1929
1930
1931
Conclusion
• Asymmetric incidence of tariff changes
– Reductions: ≈ 100% pass-through
– Increases: ≈ 40% percent pass through
• Asymmetric demand response
– Forward shifting of imports with tariff increase
– Little postponement with tariff decrease
The Smoot-Hawley Tariff of 1930
Cane sugar tariff
• Sugar imported from the Philippines & Cuba
• Philippines given duty free access
• Tariff on Cuban sugar hiked from 104% to 175%
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
1890
1895
1900
1905
1910
Why no price impact?
Cuban
Exports
1890
1891
Change
United States
513,355
707,237
+193,902
+38%
Other
markets
122,904
100,505
-22,399
-18%
Bagwell-Staiger (2010)
• “the empirical relevance of terms-of-trade
manipulation is much greater than has been
widely believed . . . .most countries, even
apparently ‘small’ countries, have significant
ability to alter their terms of trade on many
imported products with their tariff choices.”