Working Paper: CEPR ID: DP806
Authors: Gene M. Grossman; Elhanan Helpman
Abstract: Whether governments clash in trade disputes or negotiate over trade agreements, their actions in the international arena reflect political conditions back home. Previous studies of cooperative and non-cooperative trade relations have focused on governments that are immune from political pressures and act as benevolent servants of the public interest. Here we take a first step towards introducing domestic politics into the analysis of international economic relations. We study the interactions between national leaders who are concerned both with providing a high standard of living to the general electorate and collecting campaign contributions from special interest groups. The analysis reveals the determinants of the structure of protection in a non-cooperative trade war and in a cooperative trade agreement.
Keywords: political economy; trade policy; tariff wars; trade negotiations
JEL Codes: 072; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| campaign contributions from industry lobby groups (D72) | trade policies set by governments (F13) |
| trade policies set by governments (F13) | protective tariff structure (L11) |
| trade wars arise when governments unilaterally impose trade policies (F13) | noncooperative equilibrium (C72) |
| noncooperative equilibrium (C72) | interests of organized domestic industries prioritized (F13) |
| cooperative trade negotiations (F13) | lower trade barriers (F19) |
| cooperative trade negotiations (F13) | mutual political gains (F55) |
| political motivations of incumbent politicians (D72) | equilibrium trade policy (F13) |
| equilibrium trade policy (F13) | international trade outcomes (F10) |