Template-Type: ReDIF-Paper 1.0 Author-Name: James Lake Author-Name-First: James Author-Name-Last: Lake Author-Workplace-Name: Department of Economics, University of Tennessee Author-Email: jlake7@utk.edu Author-Name: Andrew Greenland Author-Name-First: Andrew Author-Name-Last: Greenland Author-Workplace-Name: Department of Economics, North Carolina State University Author-Email: agreenl@ncsu.edu Author-Name: John Lopresti Author-Name-First: John Author-Name-Last: Lopresti Author-Workplace-Name: Department of Economics, William and Mary Author-Email: jwlopresti@wm.e Title: US Inequality in the 1980s: The Tokyo Round Trade Liberalization and the Swiss Formula Abstract: Against a backdrop of sharply rising inequality, the Tokyo Round of the GATT resulted in a 1.6 percentage point reduction in average US tariffs – larger than CUSFTA, NAFTA, and the liberalization accompanying the granting of PNTR to China. We construct a novel IV based on the so-called ``Swiss formula'' that governed Tokyo Round tariff liberalization to provide the first evidence of its effects on imports and inequality. Instrumented tariff reductions explain 17% of the within-industry rise in income inequality between skilled and unskilled workers between 1979 and 1988. This effect is largest in more technology-intensive industries, suggesting a complementarity between trade liberalization and skill-biased technological change. We also show that tariff liberalization in upstream industries produced a shift away from labor more broadly and towards intermediate inputs. Finally, we show that policymakers dampened the observed impact of tariffs on inequality by assigning smaller tariff reductions to industries more reliant on low-skilled labor. Length: 42 pages Creation-Date: 2024-02 Revision-Date: File-URL: http://web.utk.edu/~jhollad3/RePEc/2024-02.pdf File-Format: Application/pdf File-Function: First version, 2024 File-Format: Application/pdf File-Function: Number: 2024-02 Classification-JEL: F13, F14, F66 Keywords: Handle: RePEc:ten:wpaper:2024-02