The Welfare Analyses of Bilateral Tariff Increases Under the existence of Asymmetric Trade Costs

In the conclusion of the two-country endogenous trade pattern model of Dornbusch et al. (1977), when two countries are of different tech-nologies and different populations、bilateral tariff increases will cause the price level of the two countries increase and no change to rel-ative wage。Therefore,the welfare of both countries will decrease 。 In this paper we show that their proposition doesn’t hold if there exist asymmetric trade costs between the two countries 。 Bilateral tariff in-crease will cause the country who assumes more trade cost an increase in its wage from the transformation of trade cost to income 。 Now,even the economic scale of the two countries are the same, the country with more population will have an increase in its welfare, and the total wel-fare of the world will also increase 。 Besides,if the two countries are of different economic scale and different trade costs, bilateral tariff in-creases will cause the world welfare increase from the increase of the welfare of the country with bigger economic scale 。 When there exist no trade costs, our model also can fully duplicate the conclusion from the Dornbusch et al. (1977