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Tariff Retaliation And The Free Trade Argument

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Author Info
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.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Game Theory Review.

Volume (Year): 09 (2007)
Issue (Month): 04 ()
Pages: 657-666
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Handle: RePEc:wsi:igtrxx:v:09:y:2007:i:04:p:657-666

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Related research
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;

Find related papers by JEL classification:
B4 - Schools of Economic Thought and Methodology - - Economic Methodology
C0 - Mathematical and Quantitative Methods - - General
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming
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 - - Business Economics

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