Abstract: By establishing a symmetric two-country trade model, this paper studies the impacts of trade protection measures on the two countries’ economy and their innovation ability from the supply and demand mechanism. According to the model in this paper, trade protection is more likely to become an effective weapon under the conditions of decreasing returns on scale and high homogeneity of tradable goods. The two scenarios of effective and ineffective trade barriers are verified by numerical simulation. This paper also simulates the multi-country model and the asymmetric scenario. It is believed that due to the differences in economic strength, trade structure and production structure between the initiator and the sanctioned countries of trade dispute, the trade protection measures will have different effects under different trade types. In addition, according to the characteristics of import and export structure, the maximization of consumers’ utility and the minimization of producers’ cost, the authors deduce the Sylvester equation of the trade model, and the solution and simulation of the model are carried out by the study of the Sylvester equation.

Key words: trade protection, supply and demand analysis, Sylvester function