How Trade Policies Affect Economic Growth and Social Welfare in Large Countries?—A Theoretical Analysis
How does trade conflict between two large countries affect their long-run output and wel-fare?We develop a dynamic model and find that:when a developed country(N)imposes a sudden tariff on a developing country(S),in the short run it raises its own output and hurts the output and welfare of country S,but the long-run impact depends on the industrial structure of country S.If country S succeeds in industrial upgrading,tariff will raise the capital return in country S and facilitates its endowment-driven industrial upgrading;otherwise,tariff will hurt output and welfare of country S.