Tariff escalation and de-escalation: the role of market structure

We adopt the conjectural variations approach to explore the rationale for tariff escalation and de-escalation. The main findings indicate that it is a welfare maximization choice for the importing country to adopt an escalated, unified, and/or de-escalated tariff scheme; nevertheless, the escalated tariff scheme is more likely to be chosen, while a unified tariff is the least likely to be adopted. Both potential market size and market structure in the importing country play essential roles for government to make the choices.