Increased protection in the 1980s: Exchange rates and institutions

The strong appreciation of the U.S. dollar between 1980 and 1985 encouraged the substitution of imports for domestically produced goods for a variety of products. This, in turn, increased the demand for trade protection. Many of these demands were satisfied via “apolitical” U.S. antidumping and countervail regulations, yieldingad valorem tariffs well above current average statutory duties. The supply of trade protection is developed via a principal-agent model that describes the potential gains to both the regulatory agency and the legislator. Empirical results support the model specification, finding both exchange rate and political cycles in the use of “apolitical” trade protection.