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Tariff Retaliation And The Free Trade Argument

Author

Listed:
  • JOSÉ MÉNDEZ NAYA

    (Universidade de A Coruña, Facultade de Ciencias Económicas e Empresariais, Campus de Elviña s/n. 15071 A Coruña, Spain)

  • LUCIANO MÉNDEZ NAYA

    (Universidade de Santiago, Spain)

Abstract

The effects of tariff wars on welfare are analysed for the case of trade between two countries with outputs of the traded good given exogenously. Assuming mild conditions, it is shown that if there are non-zero tariffs for which welfare-maximizing equilibrium holds, then free trade is not strictly preferable when the countries' outputs are equal, and if they are not equal is strictly disadvantageous to the country with the smaller output. Therefore, the main result of the paper is that free trade is not sustainable in an asymmetric context nor in a symmetric situation.

Suggested Citation

  • José Méndez Naya & Luciano Méndez Naya, 2007. "Tariff Retaliation And The Free Trade Argument," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 9(04), pages 657-666.
    • Handle: RePEc:wsi:igtrxx:v:09:y:2007:i:04:n:s0219198907001643
    DOI: 10.1142/S0219198907001643
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    More about this item

    Keywords

    Commercial policy; trade negotiations; market structure and firms strategy; multinational firms; free trade; J.E.L. Classification: F13; J.E.L. Classification: L1; J.E.L. Classification: F23;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C0 - Mathematical and Quantitative Methods - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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