<p>If you're using a simple standard model of trade, like the Ricardian model, trade is good and all tariffs, price floors, price ceilings, etc are bad. Retaliatory tariffs will still be problematic for the country imposing them. I think your reasoning is fine in this regard.</p>

<p>However, trade occurs over many many years. Responding to the initiation of new tariffs by imposing temporary tariffs will reduce the short-term welfare for everyone, including the tariff initiator.  The country which began this "trade war" will then have lower welfare from both sets of tariffs.  Hopefully, the initiating country will remove their tariffs and return to normal.</p>

<p>The retaliating country has some short-run cost, but if it leads to a final low-tariff state, retaliation may be worth it in the long run.</p>

<p>Imagine the game is a repeated version of the following:</p>

<p>\begin{array}
\\ &amp; Free Trade &amp; Tariff 
\\ Free Trade&amp;(5,5)&amp;(3,4)
\\ Tariff &amp; (4,3)&amp;(2,2)
\end{array}</p>

<p>Where for some reason a party has ended on Tariff, perhaps because they have a "trembling hand" with regard to policy.  Note this is different then the prisoner's dilemma because the payoff does not increase as a result of imposing tariffs.</p>

CC BY-SA 4.0
2018-06-18T22:17:56.237Z
2018-06-18T22:24:20.100Z
2018-06-18T22:24:20.100Z
RegressForward
<blockquote>
  <p>is there is any need for a country to retaliate against another
  country's import tariffs?</p>
</blockquote>

<p>Yes, it's a response against a form of disloyal competition. The effect of tariffs on imports is equivalent to that of currency depreciation. Retaliation or tariffs reciprocation aims at neutralizing a country's dissimulated depreciation of its currency.</p>

<p>In our globalized markets, countries depend on exports for strengthening their economy. The competitive advantage from an innovation's breakthrough is short-lived because nowadays the rest of the countries are able to reproduce that innovation rather quickly. Thus, the easiest and most immediate mechanism for an economy to become more "competitive" is by depreciation of its local currency.</p>

<p>Countries are upset with Trump's tariffs on imports because these are a form of currency [frowned upon] depreciation: Tariffs on imports make it more costly for local consumers to purchase goods from outside. Countries reasonably disapprove of Trump's work-around to the existing international conventions against deliberate depreciation of an economy's local currency.</p>

<blockquote>
  <p>When Trump imposes tariffs on imports from China, he is hurting
  American consumers who won't be able to take advantage of cheap
  Chinese goods. If China was to retaliate by imposing tariffs on
  imports from the US, they would be hurting Chinese consumers in the
  same way.</p>
</blockquote>

<p>I would question whether consumers are --at least <em>directly</em> and to the same extent-- affected by their government's tariffs on imports (I should mention, though, that I have not seen a breakdown of flows in the international trade). See my comment on the short-lived advantage from innovations' breakthroughs. Moreover, China could import from Europe or other countries many of the goods it hitherto imported from the U.S.</p>

CC BY-SA 4.0
2018-06-17T23:43:03.953Z
(-1) "The effect of tariffs on imports is equivalent to that of currency depreciation." This is true for *some* effects, probably not most, and definitely not all. E.g. there is no tariff income from currency depreciation, but there is tariff income from tariffs.
Giskard
CC BY-SA 4.0
2018-06-18T10:24:13.433Z
@denesp No offense, but amid the nitpicking you are missing the point, which is: Both currency depreciation and tariffs on imports render imports more expensive than local products. Indeed, exporters won't absorb the expense of tariffs; they will charge it to the consumer. And you are missing the context: [Trump's excuse for tariffs on imports](https://www.bbc.com/news/business-44498484) is not the pursuit of tariff income, but the protectionist policy of (quote:) *preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs*.
Iñaki Viggers
CC BY-SA 4.0
2018-06-18T10:45:31.443Z
None taken! You can rephrase the statement and clarify what you mean, but currently it is simply incorrect.
Giskard
CC BY-SA 4.0
2018-06-18T12:33:10.763Z
@denesp "it is simply incorrect". No, it's not. You are just missing the point and what is being asked here. If the price tag of Captain America's shield made of imported steel was 100 USD, now replacing it will cost him 125. Neither he nor China cares whether the 25 USD increase means tariff income or depreciation of the USD. All he cares about is that the purchase power of his 100 USD bill no longer suffices for buying a shield made of imported steel, whereas all China cares about is that the 25 USD increase -as reflected at U.S. retail stores- factually hurts China's market share in the US.
Iñaki Viggers
CC BY-SA 4.0
2018-06-17T23:15:24.370Z
2018-06-17T23:31:37.890Z
2018-06-17T23:31:37.890Z
Iñaki Viggers
<p>When Trump imposes tariffs on imports from China, he is hurting American consumers who won't be able to take advantage of cheap Chinese goods. If China was to retaliate by imposing tariffs on imports from the US, they would be hurting Chinese consumers in the same way. So, is there is any need for a country to retaliate against another country's import tariffs?</p>

<macroeconomics><international-trade>
Retaliating against a foreign country's import tariffs
Siddhartha
# Retaliating against a foreign country's import tariffs

(Asked by: username_0 on 2018-06-17)

When Trump imposes tariffs on imports from China, he is hurting American consumers who won't be able to take advantage of cheap Chinese goods. If China was to retaliate by imposing tariffs on imports from the US, they would be hurting Chinese consumers in the same way. So, is there is any need for a country to retaliate against another country's import tariffs?

**Tags:** macroeconomics, international-trade

---

## 2 answers

### Answer by username_1 on 2018-06-18. Score: 2 | Accepted answer

If you're using a simple standard model of trade, like the Ricardian model, trade is good and all tariffs, price floors, price ceilings, etc are bad. Retaliatory tariffs will still be problematic for the country imposing them. I think your reasoning is fine in this regard.

However, trade occurs over many many years. Responding to the initiation of new tariffs by imposing temporary tariffs will reduce the short-term welfare for everyone, including the tariff initiator. The country which began this "trade war" will then have lower welfare from both sets of tariffs. Hopefully, the initiating country will remove their tariffs and return to normal.

The retaliating country has some short-run cost, but if it leads to a final low-tariff state, retaliation may be worth it in the long run.

Imagine the game is a repeated version of the following:

\begin{array}
\\ & Free Trade & Tariff
\\ Free Trade&(5,5)&(3,4)
\\ Tariff & (4,3)&(2,2)
\end{array}

Where for some reason a party has ended on Tariff, perhaps because they have a "trembling hand" with regard to policy. Note this is different then the prisoner's dilemma because the payoff does not increase as a result of imposing tariffs.


---

### Answer by username_2 on 2018-06-17. Score: 1

> is there is any need for a country to retaliate against another
> country's import tariffs?

Yes, it's a response against a form of disloyal competition. The effect of tariffs on imports is equivalent to that of currency depreciation. Retaliation or tariffs reciprocation aims at neutralizing a country's dissimulated depreciation of its currency.

In our globalized markets, countries depend on exports for strengthening their economy. The competitive advantage from an innovation's breakthrough is short-lived because nowadays the rest of the countries are able to reproduce that innovation rather quickly. Thus, the easiest and most immediate mechanism for an economy to become more "competitive" is by depreciation of its local currency.

Countries are upset with Trump's tariffs on imports because these are a form of currency [frowned upon] depreciation: Tariffs on imports make it more costly for local consumers to purchase goods from outside. Countries reasonably disapprove of Trump's work-around to the existing international conventions against deliberate depreciation of an economy's local currency.

> When Trump imposes tariffs on imports from China, he is hurting
> American consumers who won't be able to take advantage of cheap
> Chinese goods. If China was to retaliate by imposing tariffs on
> imports from the US, they would be hurting Chinese consumers in the
> same way.

I would question whether consumers are --at least *directly* and to the same extent-- affected by their government's tariffs on imports (I should mention, though, that I have not seen a breakdown of flows in the international trade). See my comment on the short-lived advantage from innovations' breakthroughs. Moreover, China could import from Europe or other countries many of the goods it hitherto imported from the U.S.

> **Comments:**
> **username_3**: (-1) "The effect of tariffs on imports is equivalent to that of currency depreciation." This is true for *some* effects, probably not most, and definitely not all. E.g. there is no tariff income from currency depreciation, but there is tariff income from tariffs.  
> **username_2**: @denesp No offense, but amid the nitpicking you are missing the point, which is: Both currency depreciation and tariffs on imports render imports more expensive than local products. Indeed, exporters won't absorb the expense of tariffs; they will charge it to the consumer. And you are missing the context: [Trump's excuse for tariffs on imports](https://www.bbc.com/news/business-44498484) is not the pursuit of tariff income, but the protectionist policy of (quote:) *preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs*.  
> **username_3**: None taken! You can rephrase the statement and clarify what you mean, but currently it is simply incorrect.  
> **username_2**: @denesp "it is simply incorrect". No, it's not. You are just missing the point and what is being asked here. If the price tag of Captain America's shield made of imported steel was 100 USD, now replacing it will cost him 125. Neither he nor China cares whether the 25 USD increase means tariff income or depreciation of the USD. All he cares about is that the purchase power of his 100 USD bill no longer suffices for buying a shield made of imported steel, whereas all China cares about is that the 25 USD increase -as reflected at U.S. retail stores- factually hurts China's market share in the US.  

---

