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 importweighted 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.