A Note on Macroeconomic Transmission of Tariffs

This article deals with macroeconomic transmission effects of the imposition of tariffs in large countries under different institutional arrangements of the world economy. We employ a symmetric two-country model and study the effects of a tariff on employment, consumer prices and real net income at home and abroad under four regimes charcterized by a fixed or a flexible exchange rate and no or perfect capital mobility. We finally investigate which regime offers the best "protection from beggar-thy-neighbour effects of protection", i.e. implies the smallest negative transmission effect on real net income.