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This paper determines the effect of a temporary tariff or import quota on future prices. It assumes that the home country consumes a large portion of world output so that the tariff influences world prices. The temporary tariff affects current investment decisions and this is the channel through which the tariff influences future world prices. The tariff has offsetting effects on future prices because it expands future domestic supply and contracts future foreign supply. For a benchmark case it is shown that the net effect on future prices is positive, i.e., the temporary tariff increases domestic prices even after the tariff measure has expired.


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