Metzler’s Tariff Paradox and the Transfer Problem

John Chipman

Chapter 8 in Economic Theory, Welfare and the State, 1990, pp 130-142 from Palgrave Macmillan

Abstract: Abstract It has been known since the time of Torrens (1848) and Mill (1848) that a country, if it can be considered as acting as a rational unit, can gain by imposition of a tariff (provided the foreign country does not retaliate), since a tariff will improve its terms of trade. If the improvement in the terms of trade is sufficiently great, it is possible that the domestic price of importables, which includes the tariff, will still be lower than formerly relative to the export price, in which case the tariff will not be protective. If, say, labour is the factor used relatively intensively in the import-competing industry and capital in the export industry, then by the Stolper-Samuelson theorem (cf. Stolper and Samuelson, 1941) the tariff will reduce real wages instead of raising them. This is the paradox studied by Metzler (1949a, 1949b).

Keywords: Home Country; Foreign Country; Transfer Problem; Tariff Rate; Marginal Propensity (search for similar items in EconPapers)
Date: 1990
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-10911-1_8

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DOI: 10.1007/978-1-349-10911-1_8

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