STRATEGIC TRADE POLICY

This work investigates the effects of opportunity costs of subsidizing the exports, unequal sizes of trading partners and uncertainty on strategic trade policy. The analysis shows that introduction of opportunity costs greater than unity decreases the scope of subsidizing. Besides, as the import market grows larger, the ratio of the import tariff to the price also raises; thus, the importing country uses strategic trade policy to gain at the expense of the exporting country. Under non-zero correlation between the markets, the exporter chooses export tax for positively correlated markets and sticks to the free trade policy otherwise (with importer setting a non-zero import tariff in both cases). Export tax is to decrease welfare volatility of the exporter in case of positive correlated markets, whereas negative correlation provides natural diversification; hence, exporting country chooses free trade. The book may be useful for both practitioners and researchers in the field of international trade.