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Tariff Reductions and UK Imports of Manufactures: 1955-1971

Published online by Cambridge University Press:  26 March 2020

A.D. Morgan  and
D. Martin
A.D. Morgan
Affiliation:
National Institute of Economic and Social Research
D. Martin
Affiliation:
National Institute of Economic and Social Research
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Extract

Among the many factors that have contributed to the rapid growth of UK imports of manufactures over the last fifteen years or so, tariff reductions, both general and preferential, are usually mentioned as being one. Hitherto, however, the effect of all such reductions has not been quantified though some studies of the effect of EFTA membership on imports have been made. This article attempts to repair the omission by calculating the extent of the tariff cuts and by examining their effect on two broad groups of manufactures–semi-manufactures and finished goods.

Type
Articles
Information
National Institute Economic Review , Volume 72 , May 1975 , pp. 38 - 54
Copyright
Copyright © 1975 National Institute of Economic and Social Research

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Footnotes

The authors are grateful for advice and assistance from J. D. Whitley and other members of the National Institute staff.

References

(1) It is true that for the exporter the origin of the change may be a matter of importance, since a lower landed price implies a lower selling price (unless transport costs have fallen) while, if supply is not perfectly elastic, he may absorb part of any tariff cut into his selling price so that a rise in landed prices could partially offset a fall in tariffs. So long, however, as the purchaser is concerned only with the change in the total import price, the tariff should still be incorporated in the price variable.

(1) M. FG. Scott, A Study of United Kingdom Imports, Cambridge University Press, 1963.

(2) J. Wemelsfelder, ‘The short-term effect of the lowering of import duties in Germany’, Economic Journal, March 1960.

(3) M. E. Kreinin, ‘Effect of tariff changes on the prices and volume of imports’, American Economic Review, June 1961.

(4) L. B. Krause, ‘United States imports 1947-1958’, Econometrica, April 1962.

(5) A third possible explanation has been suggested for the existence of tariff elasticities differing from and higher than price elasticities: that the tariff elasticities are picking up the reaction to changes in effective rather than nominal protection. The former measures the protection given to value added in industry which, in developed countries, is normally greater than the apparent protection given by the nominal tariff. A change in the nominal tariff might therefore be expected to produce a greater change in the effective rate of protection, so that the use of nominal tariffs to calculate the effect of changes yields very high elasticities. It seems doubtful, however, that it is necessary or desirable to invoke the theory of effective protection to explain changes in broad sectors of trade, even were it possible to do so in relation to products rather than industries. Moreover, the little evidence available on the relative change in UK nominal and effective rates does not suggest that the latter have fallen significantly more than the former, at least under the Kennedy Round; c.f. the estimates of nominal and effective protection in 1968 and 1972 in Nicholas Oulton, Tariffs, taxes and trade in the UK: the effective protection approach, HMSO, 1973.

(1) Frederick Catherwood, Government industry dialogue— an aspect of economic strategy-Manchester Statistical Society (paper read 13th January, 1971).

(2) Irving B. Kravis and Robert E. Lipsey, ‘Price competitive, ness in world trade’, National Bureau of Economic Research-New York, 1971.

(1) More recently a significant ‘import deposit effect’ has been found; but it is doubtful that including the cost to the importer of the deposit would seriously alter our main conclusions.

(1) These differences in the numerical value of the elasticities are partly due to differences in the formulation of the variables and in the time periods covered, and in the case of semi-manufactures cannot be considered significant. For finished goods the difference is very much reduced when a post-1967 shift dummy is incorporated in the quarterly equations, but remains sizeable. However, at least some of this remaining difference may be explained by an increase in the price elasticity over time. Our elasticity estimates are historical; they should not be taken as being applicable without modification to the changed circumstances of the 1970s.