Domestic Welfare Effects of Foreign Strategic Trade Policies

Domestic Welfare Effects of Foreign Strategic Trade Policies

Within a duopoly strategic trade policy model, we analyzw the effect of foreing strategic trade policies on domestic welfare when the damestic government pursues a laissez-faire import policy. With Cournot comperirion and domestic production and consumption, an increas in the foreign strategic export subsidy increases domestic welfare when the domestic price exceeds thr foreign firm marginal cost. With Bertrand competition, an increase in foreing strategic export tax has ambiguous effect on domestic welfare and depends on the degree of product differentiation and domestic cross-price elasticity of demand verween domestic and foreign goods.