Precautionary protectionism

Sharon Traiberman and Martin Rotemberg

Journal of International Economics, 2023, vol. 145, issue C

Abstract: We characterize optimal trade policy when there is a potential crisis: an increase in demand for goods produced abroad. In our model, comparative advantage is endogenous, as countries cannot start producing new goods after the shock. In anticipation, the optimal policy uses tariffs to encourage the production of more goods. For marginally competitive goods, the optimal policy trades off comparative advantage and demand. However, the home planner never protects goods where comparative advantage is low, even those with large demand shocks.

Keywords: Optimal tariffs; Comparative advantage; Rustiness (search for similar items in EconPapers)
Date: 2023
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Working Paper: Precautionary Protectionism (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:145:y:2023:i:c:s0022199623001228

DOI: 10.1016/j.jinteco.2023.103836

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