If a 50% tariff is imposed by Country A on Cars imported from Country B, even at the best terms Country A could negotiate with Country B, a Car would cost 3/4 of a unit of Food (1/2 a unit to Country B and 1/4 in tariff payments). If the terms of trade were less favorable to Country A, the tariff payment would be even higher. If the tariff is raised to 100%, at the best terms of trade, a Car would cost 1 unit of Food (1/2 a unit to Country B and 1/2 in tariff payments). With a 200% tariff at these terms, a Car would cost 1.5 units of Food (1/2 a unit to Country B and 1 in tariff payments). Finally, at a 300% tariff an imported Car would cost 2 units of Food (1/2 a unit to Country B and 1.5 in tariff payments), at which point importing no longer makes sense because this is the opportunity cost of a domestic Car and all gains from trade disappear.

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