Click to view and download the paper. Alternatively, if you have difficulty in downloading the file, and would like to have a hard copy of it, please click here.

The paper is in .pdf format. To view and print it requires Adobe Acrobat Reader. If you do not have the program installed in your computer, you can download a free copy of it first. If you have difficulty in downloading the file, and would like to have a hard copy of it, please click here.

Abstract

This note argues that when two countries choose optimal tariffs in a trade war, specific tariffs are not equivalent to ad valorem tariffs even if all markets are competitive. In particular, it shows that if a country's trading partner switches from a specific tariff to an ad valorem tariff that yields the same revenue at the initial trade point, the former country has an incentive to lower its tariff. When two identical countries choose the types and magnitudes of tariffs in a two-stage game, they will choose ad valorem tariffs, making the trade war less severe.


Comments on this paper are most welcome. Please send them to karyiu@u.washington.edu.