Large economies can affect world prices by applying import tariffs.

Is this because they definitionally comprise a substantial portion of global consumption, and hence by shifting production domestically they can shift the world price equilibrium?

What is the mechanism of action?

For example, if the USA comprises 25% of auto consumption, if they apply a tariff t to autos, that will presumably lower the quantity demanded outside of the US as US consumers are incentivised to buy locally.

What effect on global price might this have?

  • $\begingroup$ Have you tried researching your question? This is covered in intro to international trade textbooks (e.g. Krugman's) in the chapter on tariffs (large economies case). $\endgroup$ – Giskard Jun 20 at 6:42
  • $\begingroup$ "if they apply a tariff t to autos, that will presumably lower demand outside of the US" -- this is not correct. If the US applies a tariff on Ferraris, why would demand for Ferraris in Japan fall? $\endgroup$ – Kenny LJ Jun 20 at 6:49
  • $\begingroup$ Demand for Ferraris would fall overall because of the increased consumer price in 25% of the market (the USA). I never stated that demand would fall in other specific markets like Japan. $\endgroup$ – Ben Jun 20 at 7:09
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    $\begingroup$ Ah, that is the classic Econ 101 confusion between demand and quantity demanded. When price rises, quantity demanded falls, but demand doesn't. $\endgroup$ – Kenny LJ Jun 20 at 8:17
  • $\begingroup$ Ah, thanks for the clarification. $\endgroup$ – Ben Jun 20 at 8:55

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