Tariff Reciprocity

U.S. President Trump’s emphasis on ‘tariff reciprocity’ has focused public attention on relative height of tariffs as a measure of fairness in trade relations. The import-weighted average tariff subsequently used by USTR to rank how protectionist are trading partners is atheoretic and misleading for this purpose. We propose and implement a theory-consistent tariff index that combines thousands of tariff rates into an import volume equivalent uniform tariff. The index: (i) is consistent with the WTO principle that trade relations should aim at reciprocal exchange of market access, and (ii) decomposes neatly into each country’s buyer and seller incidence of tariffs.