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The Armington Assumption and the Size of Optimal Tariffs

Author

Listed:
  • Li, Chunding

    (Institute of World Economics and Politics Chinese Academy of Social Sciences)

  • Wang, Jing

    (University of Western Ontario)

  • Whalley, John

    (University of Western Ontario)

Abstract

There has been commentary on the seeming success of the world trading system responding to the large shock of the 2008 financial crisis without an outbreak of retaliatory market closing. The threat of large retaliatory tariffs and fears of a 1930s style downturn in trade have been associated with numerical trade modelling which project post retaliation optimal tariffs in excesses of 100%. In the relevant numerical modelling it is common to use the Armington assumption of product heterogeneity by country. Here we argue and show by numerical calculation that the widespread use of this assumption gives a large upward bias to optimal tariffs, both first step and post retaliation, relative to alternative homogenous good models used in trade theory.

Suggested Citation

  • Li, Chunding & Wang, Jing & Whalley, John, 2015. "The Armington Assumption and the Size of Optimal Tariffs," CAGE Online Working Paper Series 246, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:246
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    4. Peter A.G. van Bergeijk, 2019. "Deglobalization 2.0," Books, Edward Elgar Publishing, number 18560.
    5. Bekkers, Eddy & Francois, Joseph & Rojas-Romagosa, Hugo, 2019. "Trade Wars: Nobody Expects the Spanish Inquisition," Papers 1234, World Trade Institute.
    6. Bekkers, Eddy & Teh, Robert, 2019. "Potential economic effects of a global trade conflict: Projecting the medium-run effects with the WTO global trade model," WTO Staff Working Papers ERSD-2019-04, World Trade Organization (WTO), Economic Research and Statistics Division.
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    8. Sen, Rahul & Narayanan, Badri & Srivastava, Sadhana & Khorana, Sangeeta & Iyer, Chidambaran, 2020. "The Long-term Impact of Trade Wars and ‘Make in India on the Indian Economy," Conference papers 330229, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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