Escape from Tariffs

• In Event: Firms, Lobbying, Tariffs, and Policy Outcomes

Abstract

The literature on the political economy of trade protection has focused on how firms lobby for their preferred tariffs, but opportunities to change the tariff schedule in the US by legislation are relatively uncommon. How do firms use the political system to their advantage to escape inconvenient trade barriers? This article documents how firms seek favorable tariffs by strategically requesting product classifications. In the United States products must be sorted into tariff categories by the customs office before the appropriate duty can be determined. Using a differences-in-differences empirical strategy and a unique dataset of over 200,000 classification rulings between 1990 and 2019, I find evidence that firms request classifications when trade barriers are imposed. In particular, I find that firms request classifications when quotas are imposed, when President Donald Trump’s tariffs were imposed, and when China entered the WTO. Consistent with a tariff evasion motive, I find that more classification requests are registered when the variance of tariffs within a tariff heading is higher.

Author

• Michael-David Mangini, Harvard University