A BEJEAP Topics article.

Abstract

In this paper, we analyze the trade war between two large countries when the trade policy is decided through majority voting. We show how the distributive aspect of trade policy interacts with the strategic aspect. It is shown that the voting equilibrium depends on the distribution of the factor endowment. If median voters in each country own relatively more (less) than the aggregate economy of the factor used intensively in the production of the imported good, the tariffs outcome of the trade war at home (abroad) is larger (lower) than the Johnson-Mayer one. This is to say that the strategic effects from trade policy can be isolated from the distributive aspect. Moreover, an increase of the median of the scarce/abundant factor distribution in one country leads to a larger tariff in this country and a lower tariff in the other. This implies that the political situation in one country affects the outcome of the trade war for both.

Submitted: May 27, 2004 · Accepted: July 13, 2005 · Published: January 7, 2006

Originally published in Topics in Economic Analysis & Policy.

Recommended Citation

van Ypersele, Tanguy (2005) "Voting on Tariff and Retaliation," Topics in Economic Analysis & Policy: Vol. 5 : Iss. 1, Article 23.
Available at: http://www.bepress.com/bejeap/topics/vol5/iss1/art23