Do Big Countries Win Tariff Wars?

John Kennan and Raymond Riezman

International Economic Review, 1988, vol. 29, issue 1, 81-85

Abstract: Yes. It is widely believed that tariffs invite retaliation, and that the postretaliation equilibrium l eaves all countries worse off than they would be at free trade. The a uthors present a simple pure exchange model, with two countries and t wo goods, and show which endowment patterns are consistent with this belief. They find that if one country is substantially bigger than th e other it can expect to gain from a tariff war, despite retaliation. The model can be extended to show that the advantage obtained by bei ng part of a large trading unit can help explain the formation of cus toms unions. Copyright 1988 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1988
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