Tariff-Dispersion Shocks: The Mean is the Variance
This paper studies the joint behavior over time of the mean and dispersion of U.S. import tariff rates across goods at the HTS 6-digit level, as well as the macroeconomic consequences of the shocks that drive these two moments. We document that the cross-sectional mean and the cross-sectional dispersion of import tariffs move closely together over time. Using a state-space model, we find that both are driven primarily by common shocks, while mean- and dispersion-specific tariff shocks play a negligible role. Thus, effectively, there are no separate mean-tariff shocks or tariff-dispersion shocks; there are only mean-dispersion tariff shocks. These common shocks account for a sizable share of movements in imports and the trade balance but only a small fraction of movements in output. A positive transitory mean-dispersion tariff shock reduces the import-to-output ratio and improves the trade-balance-to-output ratio; a positive permanent mean-dispersion tariff shock also reduces the import-to-output ratio but has a muted effect on the trade-balance-to-output ratio. Positive transitory mean-dispersion tariff shocks are expansionary, whereas positive permanent mean-dispersion tariff shocks are contractionary in the short run and expansionary in the medium run.
