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Optimum Tariffs and Retaliation: How Country Numbers Matter

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Author Info
Ben Zissimos () (Department of Economics, Vanderbilt University)

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Abstract

This paper identifies a new terms-of-trade externality that is exercised through tariff setting. A North-South model of international trade is introduced in which the number of countries in each region can be varied. As the number of countries in one region is increased, each government there competes more aggressively with the others in its region, by lowering its tariff, to attract imports from the other region. In doing so, all countries in a region exert a negative terms-of-trade externality on each other, collectively undermining their own terms of trade and welfare. This externality can increase efficiency if the numbers of countries in both regions are increased simultaneously.

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File URL: http://www.vanderbilt.edu/Econ/wparchive/workpaper/vu09-w04.pdf
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File Function: First version, 2009
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number 0904.

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Date of creation: Mar 2009
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Handle: RePEc:van:wpaper:0904

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Related research
Keywords: Comparative statics; efficiency; North-South; tariff war; terms of trade;

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Find related papers by JEL classification:
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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  2. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524341, January.
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    Other versions:
  4. Amir, Rabah & Bloch, Francis, 2009. "Comparative statics in a simple class of strategic market games," Games and Economic Behavior, Elsevier, vol. 65(1), pages 7-24, January. [Downloadable!] (restricted)
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    Other versions:
  6. Tower, Edward, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Blackwell Publishing, vol. 42(4), pages 623-30, October. [Downloadable!] (restricted)
  7. Pinelopi Koujianou Goldberg & Giovanni Maggi, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December. [Downloadable!] (restricted)
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  8. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204, January.
  9. Hiau LooiKee & Alessandro Nicita & Marcelo Olarreaga, 2009. "Estimating Trade Restrictiveness Indices," Economic Journal, Royal Economic Society, vol. 119(534), pages 172-199, 01. [Downloadable!] (restricted)
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  10. Hamilton, Bob & Whalley, John, 1983. "Optimal tariff calculations in alternative trade models and some possible implications for current world trading arrangements," Journal of International Economics, Elsevier, vol. 15(3-4), pages 323-348, November. [Downloadable!] (restricted)
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  13. Syropoulos, Constantinos, 2002. "Optimum Tariffs and Retaliation Revisited: How Country Size Matters," Review of Economic Studies, Blackwell Publishing, vol. 69(3), pages 707-27, July.
  14. Robert W. Staiger, 1994. "International Rules and Institutions for Trade Policy," NBER Working Papers 4962, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Gros, Daniel, 1987. "A note on the optimal tariff, retaliation and the welfare loss from tariff wars in a framework with intra-industry trade," Journal of International Economics, Elsevier, vol. 23(3-4), pages 357-367, November. [Downloadable!] (restricted)
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