ABSTRACT
When you are finished with this chapter you should understand:
That increased trade can lead to gains from trade, which can arise from many sources, including international differences in production technology and relative factor endowments, and increasing returns to scale
How trade distortions like import tariffs have different effects on different agents within the country applying the distortion and its trading partners
That trade distortions can make a country better off through a positive terms of trade effect, but the strategic effects of trade distortions take account of retaliation by trading partners which can leave all trading partners worse off
How application of strategic trade policy can result in a prisoner’s dilemma outcome
How cooperation between trading countries can be encouraged through Preferential Trade Agreements (PTAs) and Multilateral Trade Organizations like the WTO, to avoid the prisoner’s dilemma outcome of strategic trade policy
