Trade Wars and Trade Talks with Data
How large are optimal tariffs? What tariffs would prevail in a worldwide trade war? How costly would be a breakdown of international trade policy cooperation? And what is the scope for future multilateral trade negotiations? I address these and other questions using a unified framework which nests traditional, new trade, and political economy motives for protection. I find that optimal tariffs average 59 percent, world trade war tariffs average 58 percent, the welfare losses from a breakdown of international trade policy cooperation average 2.4 percent, and the possible welfare gains from future multilateral trade negotiations average 0.5 percent. Optimal tariffs are tariffs which maximize a political economy augmented measure of real income.
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This paper was revised on June 17, 2013