Classroom Tariff Wars: A Tariff Setting Game

Abstract

This paper outlines a classroom tariff setting game that allows students to explore the consequences of import tariffs imposed by large countries (countries able to influence world prices). Groups of students represent countries, which are organised into trading pairs. Each group's objective is to maximise welfare by choosing an appropriate ad valorem tariff. The game is built on a computable general equilibrium model, which allows each nation's utility and terms of trade under alternative tariff regimes to be expressed quantitatively. The exercise encourages students to consider terms of trade improvements and efficiency losses resulting from large-country tariffs and provides a backdrop to discuss the Nash equilibrium of a tariff war. Feedback from students who have participated in trial simulations indicates that the game is a useful supplement to traditional teaching methods.