How unilateral tariffs harm workers under oligopoly

Abstract

I study import tariffs in an asymmetric general oligopolistic equilibrium trade model. Their anti‐competitive effect reduces labour demand because firms want to shorten supply. Unilaterally increasing the import tariff raises domestic welfare at the foreign country's expense, but comes at the cost of favouring profit recipients as compared to workers, whose real wages fall. Only if initial tariffs are low, the tariff‐increasing government could use its rising tariff revenue to neutralise the distributional effect or the negative effect on workers. If supporting workers is the policy objective, tariffs do not appear to be a suitable tool under oligopoly.