Today, I am going to explain why tariffs on more countries can be better! Not to worry, I still think free trade is the best policy (modulo some special cases discussed in Modern Principles) but I am going to show that a uniform tariff can be better than a selective tariff. My example comes from a nice tweet from Malaysia expert Apurva Sanghi, modified for the US context.

Suppose the U.S. can import Hyundai Sonatas from Korea and Toyota Camrys from Japan, and consumers view the two cars as perfect substitutes. We compare three scenarios:

A) Free trade
B) 10% tariff on both countries (uniform tariff)
C) 10% tariff on Korea only (selective tariff)

The surprising result: B can be better than C, even though C is, in one sense, closer to free trade (the “best” policy) than B as it tariffs fewer countries. To focus on the key points I will