Do Big Countries Win Tariff Wars?

Yes. It is widely believed that tariffs invite retaliation, and that the postretaliation equilibrium l eaves all countries worse off than they would be at free trade. The a uthors present a simple pure exchange model, with two countries and t wo goods, and show which endowment patterns are consistent with this belief. They find that if one country is substantially bigger than th e other it can expect to gain from a tariff war, despite retaliation. The model can be extended to show that the advantage obtained by bei ng part of a large trading unit can help explain the formation of cus toms unions.