The recent trade war escalation between the U.S. and China has re-emphasized the need for better understanding the welfare impacts of protectionism. Using a two-country model which incorporates various degrees of market competitiveness, this paper studies the welfare implications of the U.S. Continued Dumping and Subsidy Offset Act (CDSOA) of 2000. The results show that if the product market in the home and the foreign country is less competitive than the Cournot equilibrium and the foreign government is inactive, switching from a traditional antidumping policy to a CDSOA regime by the home government improves the home country’s social welfare at the expense of the foreign counterpart. Under this market structure, a retaliatory CDSOA by the foreign government is found to enhance the foreign country’s social welfare. Furthermore, this two-way CDSOA regime is still preferred over the traditional antidumping policy for the home country. These results do not necessarily hold true if the product markets in both countries are more competitive than the Cournot formation.
Welfare effects, CDSOA, antidumping, optimal tariff