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CFA Level 1
Economics

Impact of Tariffs on International Trade

Hard International Economics International Trade

In a globalized economy, countries engage in international trade, which allows them to specialize in the production of goods and services for which they have a comparative advantage. However, trade policies can influence the flow of goods across borders.

Consider a scenario where Country A has a comparative advantage in the production of agricultural products due to its favorable climate and abundant arable land. Meanwhile, Country B has a comparative advantage in manufacturing due to its advanced technology and skilled labor force. If both countries decide to impose tariffs on each other's products, what would be the likely immediate impact on their trade relationship?

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