Journey Of International Trade: From Perfect Competition to Tariff and Retaliation

Abstract Book of the 11th International Conference on Applied Research in Management, Economics and Accounting

Year: 2026

[PDF]

Journey Of International Trade: From Perfect Competition to Tariff and Retaliation

Dr. Wali Mondal

ABSTRACT:

The paper traces the history of international trade dating back to the theory of Comparative Advantage propounded by David Ricardo, which was based on two goods, two countries and one factor of production. This theory was later refined to include two goods, two countries and two factors of production, commonly known as the 2X2X2 model. Both the Ricardian model and the 2X2X2 model assumed perfect competition and assumed no transaction costs. In later years, many countries resorted to imposing tariffs on imported goods for various reasons. This new development led to the creation of the General Agreement on Tariffs and Trade (GATT), which later was replaced by the World Trade Organization (WTO). The aim of GATT, evolving into the WTO was to liberalize trade among nations and to minimize the risk of retaliation. The WTO was able to accomplish this goal to a significant degree. However, the recent tendency of the world’s largest economy to use tariff as a leverage, or ostensibly, to reduce or eliminate trade deficit has resulted in large-scale retaliation. The paper analyzes the welfare loss due to tariff and retaliation practices in several large trading countries.

Keywords: International Trade, Perfect Competition, One Factor of Production, 2X2X2 Model, Tariff, Retaliation