US Inequality in the 1980s: The Tokyo Round Trade Liberalization and the Swiss Formula

Andrew Greenland, James Lake and John Lopresti

No 10983, CESifo Working Paper Series from CESifo

Abstract: Against a backdrop of sharply rising inequality, the Tokyo Round of the GATT resulted in a 1.6 percentage point reduction in average US tariffs – larger than CUS-FTA, NAFTA, and the liberalization accompanying the granting of PNTR to China. We construct a novel IV based on the so-called “Swiss formula” that governed Tokyo Round tariff liberalization to provide the first evidence of its effects on imports and inequality. Instrumented tariff reductions explain 17% of the within-industry rise in income inequality between skilled and unskilled workers between 1979 and 1988. This effect is largest in more technology-intensive industries, suggesting a complementarity between trade liberalization and skill-biased technological change. We also show that tariff liberalization in upstream industries produced a shift away from labor more broadly and towards intermediate inputs. Finally, we show that policymakers dampened the observed impact of tariffs on inequality by assigning smaller tariff reductions to industries more reliant on low-skilled labor.

Keywords: tariffs; Tokyo Round; Swiss formula; inequality; skill biased technological change (search for similar items in EconPapers)
JEL-codes: F13 F14 F66 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-his and nep-int
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Working Paper: US Inequality in the 1980s: The Tokyo Round Trade Liberalization and the Swiss Formula (2024)
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