Retaliatory Tariffs in the Age of Trade Wars

Retaliatory Tariffs in the Age of Trade Wars | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Retaliatory Tariffs in the Age of Trade Wars Muhammad Nazmul Khan, Syed Abul Basher This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-7414366/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract We develop simple formulas for calculating optimal retaliatory tariffs in interna-tional trade disputes. These formulas correct reciprocal tariff rates for distortionsin exchange rates, interest rate differentials, and capital flows that occur due toforeign tariffs. We also conduct a welfare comparison between reciprocal tariffs andoptimal tariffs. The analysis reveals a stark but unsurprising insight: allowing themarkets for capital and currency to operate freely eliminates the need to retaliatevia tariffs to a significant extent. For realistic parameter values, a 15% foreign tariffcan be countered by an optimal tariff rate of only between 2.1% to 2.4%. JEL Classification: F13, F21, F32. Trade Policy Capital Mobility Current Account Balance Tariffs Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-7414366","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":512375491,"identity":"0e89de5a-e029-42e5-9be6-6b16ff8cd220","order_by":0,"name":"Muhammad Nazmul Khan","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA4ElEQVRIiWNgGAWjYNCCAgYDAwYGxgdAZgLDAQYGCcJaDMBamA1I1sImQZQWc/bjTzfzGDAYm7OfPVbxse1wHt8B5oO3efBosexJSLsN1GJm2ZOXdnNm2+FiyQNsydb4tBgcSDgG0mJjcCDH7DbvtsOJGw7wmEnj1XL+YRtEy/k3ZsV/wVr4v+HXciOZDewwgxs5ZsyMEFvYCGh5xnZzjoGEscGNN8aSvf/SiyUPsxlbzsHrsPRnN95U2BhuOJ9j+OHHGes8vuPND2+8waMFCpAjgpmw8lEwCkbBKBgFBAAAP99Qp4Q7TowAAAAASUVORK5CYII=","orcid":"","institution":"East West University","correspondingAuthor":true,"prefix":"","firstName":"Muhammad","middleName":"Nazmul","lastName":"Khan","suffix":""},{"id":512375492,"identity":"1d22c6c4-7680-4fd2-919b-198aebc4aad8","order_by":1,"name":"Syed Abul Basher","email":"","orcid":"","institution":"","correspondingAuthor":false,"prefix":"","firstName":"Syed","middleName":"Abul","lastName":"Basher","suffix":""}],"badges":[],"createdAt":"2025-08-20 07:08:28","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-7414366/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-7414366/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":92029092,"identity":"db2c1548-ed64-4ced-a040-dea78667c0bf","added_by":"auto","created_at":"2025-09-23 20:01:34","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":574538,"visible":true,"origin":"","legend":"","description":"","filename":"manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-7414366/v1_covered_cc6c9114-0c4f-418b-9782-b12f162186f0.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Retaliatory Tariffs in the Age of Trade Wars","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Trade Policy, Capital Mobility, Current Account Balance, Tariffs","lastPublishedDoi":"10.21203/rs.3.rs-7414366/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-7414366/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eWe develop simple formulas for calculating optimal retaliatory tariffs in interna-tional trade disputes. 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