with cost-shifting and the exercise of importer market power. Hence, by the second step, the termsof-trade e¤ects of a tari¤ arise whenever the incidence of the tari¤ is not fully passed through to domestic prices; and by the ...rst step, we may look to the vast empirical literature on exchange rate pass-through for indirect evidence about the degree of tari¤ pass-through.

What does the exchange rate pass-through literature imply for the answer to our ...rst question? First, in light of the conclusion from Goldberg and Knetter’s (1997) survey of this literature that pass-through rates average about 60 percent, it would appear that the existence of countries that possess substantial market power on world markets is routine. Second, after surveying this literature in his Handbook chapter, Feenstra (1995, p. 1569) concludes that, while there is strong evidence that pass-through is less than complete, the magnitude of pass-through di¤ers substantially across industries and therefore “...we should not have any presumption about the extent of terms of trade gain due to tari¤s, but must treat each industry on a case-by-case basis.” Turning to the direct evidence on this ...rst question, in a provocative paper Magee and Magee (2008) construct measures of world market concentration and trade elasticities to argue that even a “large” country like the US has little market power to exert on world markets, suggesting that market power can safely be ignored when considering the e¤ects of tari¤s. But for the most part, the literature has produced results which are consistent with the conclusions from the indirect evidence emphasized above. For example, the studies of Kreinin (1961), Winters and Chang (2000), Chang and Winters (2002), Anderson and Van Wincoop (2002), and Bown and Crowley (2006), among others, all o¤er evidence that unilateral tari¤ changes can signi...cantly a¤ect a country’s terms of trade. On the other hand, in their study of New Zealand’s unilateral trade liberalization of the 1980’s, Winkelmann and Winkelmann (1998) ...nd only weak evidence of incomplete pass-through of New Zealand tari¤s to prices in the New Zealand economy, and only in a few industries, and conclude that New Zealand truly is an example of a small country in most products. Finally, using high-frequency data on the price of raw sugar in New York City from 1890 to 1930, Irwin (2015) ...nds that about 60 percent of any US tari¤ increase was borne by foreign exporters with only 40 percent passed through to domestic consumer prices.<sup>33</sup> These studies seem to con...rm the basic conclusion of Feenstra (1995), that there is abundant evidence of substantial market power but its presence varies greatly from industry to industry and country to country. This conclusion is further reinforced by the most comprehensive study to date on the issue, that of Broda, Limão and Weinstein (2008). Focusing on the unilateral tari¤ choices of 15 countries prior to their membership in the GATT/WTO, Broda et al. estimate the foreign export supply elasticities faced by each of these countries, which as they note provides an inverse measure of the market power that each was able to exert on the foreign export (world) prices. With these estimates, they con...rm that most countries, even apparently “small” countries, have signi...cant ability to alter their terms of trade on many imported products with their tari¤ choices.

> 33 Irwin (2015) also ...nds a striking asymmetry between pass-through rates for tari¤ increases and tari¤ reductions, with the latter passed through fully to consumers. He attributes this asymmetry to asymmetric demand responses.

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