When Are Tariffs Optimal?

Thomas Lubik

Richmond Fed Economic Brief, 2025, vol. 25, issue 21

Abstract: Economic theory and historical evidence demonstrate that tariffs typically distort markets, lead to inefficient resource allocation, create deadweight losses and trigger harmful trade conflicts. While tariffs might improve a large country's terms of trade under strict theoretical conditions (market power, no retaliation), empirical evidence and real-world dynamics typically invalidate these assumptions. Repeated tariff impositions can escalate into trade wars, reducing economic welfare for all involved nations and emphasizing the importance of cooperative trade agreements.

Keywords: tariff; trade; international economics (search for similar items in EconPapers)
Date: 2025
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