Can a large country actually benefit from imposing a tariff on imports?

Economic theory suggests that a large nation might improve its terms of trade through tariffs. However, this video explains why the real-world application is rarely straightforward and often leads to counterproductive outcomes.

The concept of an optimal tariff relies on the idea that a large country can influence global prices in its favor. By imposing a tariff, the country may force foreign exporters to lower their prices, effectively shifting the terms of trade to benefit the domestic economy.

In practice, this strategy frequently triggers retaliation from trading partners. When multiple nations attempt to manipulate trade terms simultaneously, the result is often a mutually destructive cycle. Free trade agreements serve as a vital mechanism to prevent these scenarios, ensuring that countries avoid the collective welfare loss that follows when everyone pursues protectionist policies.

Source: Optimal Tariffs