Tariffs and the Barriers to Free Trade

Tariffs lead to higher prices of goods and inefficient economies. So why were high tariffs the norm in the pre-World War II era?

Takeaway Points

  1. Individual states benefit from placing tariffs on other countries to protect their own domestic manufacturers.
  2. The individual incentives create a prisoner’s dilemma.
  3. The free trade era after World War II suggests that cooperation can still result even in a prisoner’s dilemma.