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Precautionary protectionism

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  • Traiberman, Sharon
  • Rotemberg, Martin

Abstract

We characterize optimal trade policy when there is a potential crisis: an increase in demand for goods produced abroad. In our model, comparative advantage is endogenous, as countries cannot start producing new goods after the shock. In anticipation, the optimal policy uses tariffs to encourage the production of more goods. For marginally competitive goods, the optimal policy trades off comparative advantage and demand. However, the home planner never protects goods where comparative advantage is low, even those with large demand shocks.

Suggested Citation

  • Traiberman, Sharon & Rotemberg, Martin, 2023. "Precautionary protectionism," Journal of International Economics, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:inecon:v:145:y:2023:i:c:s0022199623001228
    DOI: 10.1016/j.jinteco.2023.103836
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    More about this item

    Keywords

    Optimal tariffs; Comparative advantage; Rustiness;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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