Finance and Economics Discussion Series

Are All Trade Policies Created Equal? Empirical Evidence for Nonequivalent Market Power Effects of Tariffs and Quotas

Bruce A. Blonigen, Benjamin H. Liebman, Justin R. Pierce, and Wesley W. Wilson
2012-17

Abstract: Over the past 50 years, the steel industry has been protected by a wide variety of trade policies, both tariff- and quota-based. We exploit this extensive heterogeneity in trade protection to examine the well-established theoretical literature predicting nonequivalent effects of tariffs and quotas on domestic firms' market power. Using plant-level Census Bureau data for steel plants from 1967-2002, we find evidence for significant market power effects for binding quota-based protection, but not tariff-based protection, particularly with respect to integrated and minimill steel producers. Our results are robust to calculation with two standard measures of market power and controlling for potential endogeneity of trade policies.

Keywords: Market structure, nonequivalence of tariffs and quotas, voluntary restraint agreements, antidumping, mini-mills