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Tariff wars in the Ricardian Model with a continuum of goods

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  • Opp, Marcus M.

Abstract

This paper describes strategic tariff choices within the Ricardian framework of Dornbusch, Fischer, and Samuelson (1977) using CES preferences. The optimum tariff schedule is uniform across goods and inversely related to the import demand elasticity of the other country. In the Nash equilibrium of tariffs, larger economies apply higher tariff rates. Productivity adjusted relative size ([approximate]Â GDP ratio) is a sufficient statistic for absolute productivity advantage and the size of the labor force. Both countries apply higher tariff rates if specialization gains from comparative advantage are high and transportation cost is low. A sufficiently large economy prefers the inefficient Nash equilibrium in tariffs over free trade due to its quasi-monopolistic power on world markets. The required threshold size is increasing in comparative advantage and decreasing in transportation cost. I discuss the implications of the static Nash-equilibrium analysis for the sustainability and structure of trade agreements.

Suggested Citation

  • Opp, Marcus M., 2010. "Tariff wars in the Ricardian Model with a continuum of goods," Journal of International Economics, Elsevier, vol. 80(2), pages 212-225, March.
    • Handle: RePEc:eee:inecon:v:80:y:2010:i:2:p:212-225
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Daniel Carroll & Sewon Hur, 2019. "On the Heterogeneous Welfare Gains and Losses from Trade," 2019 Meeting Papers 1358, Society for Economic Dynamics.
    2. Cecilia Bellora & Jean-Marc Bourgeon, 2014. "Agricultural Trade, Biodiversity Effects and Food Price Volatility," Working Papers hal-01052971, HAL.
    3. Cecilia Bellora & Jean-Marc Bourgeon, 2014. "Agricultural Trade, Biodiversity Effects and Food Price Volatility," Working Papers hal-00969083, HAL.
    4. Feng Dai & Songtao Wu & Ling Liang & Zifu Qin, 2016. "Bilateral Trade under Environmental Pressure: Balanced Growth," Journal of Industry, Competition and Trade, Springer, vol. 16(2), pages 209-231, June.
    5. Arnaud Costinot & Dave Donaldson & Jonathan Vogel & Iván Werning, 2015. "Comparative Advantage and Optimal Trade Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 130(2), pages 659-702.
    6. Jean-Marc Malambwe Kilolo, 2018. "An elementary model of export tax war," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(2), pages 307-325, May.
    7. Roy J. Ruffin, 2014. "Nontraded Goods and Real Exchange Rates in a Multi-Good Ricardian Model," Review of International Economics, Wiley Blackwell, vol. 22(1), pages 105-115, February.
    8. repec:cup:macdyn:v:22:y:2018:i:06:p:1462-1474_00 is not listed on IDEAS
    9. repec:bla:reviec:v:27:y:2019:i:2:p:643-665 is not listed on IDEAS
    10. Takumi Naito, 2019. "A larger country sets a lower optimal tariff," Review of International Economics, Wiley Blackwell, vol. 27(2), pages 643-665, May.
    11. Opp, Marcus M. & Parlour, Christine A. & Walden, Johan, 2014. "Markup cycles, dynamic misallocation, and amplification," Journal of Economic Theory, Elsevier, vol. 154(C), pages 126-161.
    12. Azarnert, Leonid V., 2018. "Trade, Luxury Goods, And A Growth-Enhancing Tariff," Macroeconomic Dynamics, Cambridge University Press, vol. 22(6), pages 1462-1474, September.
    13. Takumi Naito, 2016. "Aid for Trade and Global Growth," Review of International Economics, Wiley Blackwell, vol. 24(5), pages 1178-1201, November.

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