<p>Large economies can affect world prices by applying import tariffs.</p>

<p>Is this because they definitionally comprise a substantial portion of global consumption, and hence by shifting production domestically they can shift the world price equilibrium?</p>

<p>What is the mechanism of action? </p>

<p>For example, if the USA comprises 25% of auto consumption, if they apply a tariff <code>t</code> to autos, that will presumably lower the quantity demanded outside of the US as US consumers are incentivised to buy locally. </p>

<p>What effect on global price might this have?</p>

CC BY-SA 4.0
2019-06-20T06:42:27.803Z
Have you tried researching your question? This is covered in intro to international trade textbooks (e.g. Krugman's) in the chapter on tariffs (large economies case).
Giskard
CC BY-SA 4.0
2019-06-20T07:09:20.920Z
Demand for Ferraris would fall overall because of the increased consumer price in 25% of the market (the USA). I never stated that demand would fall in other specific markets like Japan.
52d6c6af
<international-trade>
By what mechanism do large economies affect world price with tariffs?
52d6c6af
# By what mechanism do large economies affect world price with tariffs?

(Asked by: username_0 on 2019-06-20)

Large economies can affect world prices by applying import tariffs.

Is this because they definitionally comprise a substantial portion of global consumption, and hence by shifting production domestically they can shift the world price equilibrium?

What is the mechanism of action?

For example, if the USA comprises 25% of auto consumption, if they apply a tariff `t` to autos, that will presumably lower the quantity demanded outside of the US as US consumers are incentivised to buy locally.

What effect on global price might this have?

**Tags:** international-trade
> **Comments:**
> **username_1**: Have you tried researching your question? This is covered in intro to international trade textbooks (e.g. Krugman's) in the chapter on tariffs (large economies case).  
> **username_0**: Demand for Ferraris would fall overall because of the increased consumer price in 25% of the market (the USA). I never stated that demand would fall in other specific markets like Japan.  

---

## 0 answers

