The Tariff System and the Composition of Imports

Abstract

1. It is generally believed that the tariff schedules of the developed countries are escalated-the rates on finished goods being higher than those on materials-and that this escalation tends to reduce the proportion of finished goods in the imports of those countries. To this general proposition, Corden (1966) has added the intuitively plausible qualification that when there is no potential production of raw materials in the advanced country, replacing the escalated (tariff) structure with the uniform tariff (leading to the same value of imports) would not raise the import of processed products (p. 229). 2. The purpose of this note is to demonstrate that, even in the case of no potential domestic production of raw materials, replacing the escalated tariff structure with the uniform tariff leading to the same total value of imports will cause imports of processed goods to increase, that is, that Corden's proposed qualification is not needed because the proposition is generally valid. 3. The demonstration is based on the first three assumptions set out in the introduction to Corden (1966), namely, (1) fixed physical inputoutput coefficients, (2) perfectly elastic import supply, and (3) traded goods remain traded after tariffs are imposed. Assumptions (2) and (3) ensure that the internal price of each importable is equal to the foreign supply price plus the tariff. To demonstrate, let total imports (imports of processed goods plus imports of inputs) be given by the expression