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Why is Trade Not Free? A Revealed Preference Approach

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Abstract

A prominent explanation for why trade is not free is politicians’ desire to protect some of their constituents at the expense of others. In this paper we develop a methodology that can be used to reveal the welfare weights that a nation’s import tariffs implicitly place on different groups of society. Applied in the context of the United States in 2017, this method implies that redistributive trade protection accounts for a significant fraction of US tariff variation and causes large monetary transfers between US individuals, mostly driven by differences in welfare weights across sectors of employment. Perhaps surprisingly, differences in welfare weights across US states play a much smaller role.

Suggested Citation

  • Rodrigo Adão & Arnaud Costinot & Dave Donaldson & John Sturm, 2024. "Why is Trade Not Free? A Revealed Preference Approach," Opportunity and Inclusive Growth Institute Working Papers 089, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmoi:98573
    DOI: 10.21034/iwp.89
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    More about this item

    Keywords

    International trade; Trade policy; Political economy;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • F10 - International Economics - - Trade - - - General
    • F00 - International Economics - - General - - - General

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