Strategic Trade Policy Research Articles

Strategic trade policy with socially concerned firms

In the light of the recent adoption of social responsible activities by large exporters, this paper sets up a strategic trade policy model in which two national champions compete à la Cournot in a third country and both governments can tax or subsidise the production of its local champion and reconsiders the well-known result of the Prisoner’s Dilemma game structure in which governments set subsidies for their exporters. We show that (1) multiple sub-game perfect equilibria emerge in which one government taxes, while the other one allows free trade, provided that firms’ social concerns are sufficiently large and (2) the social welfare of both countries in the latter asymmetric equilibrium is higher than that under free trade. Our findings suggest that a free-trade regime is always the less efficient policy in industries characterised by large social concerns. Moreover, we analyse the impact of the firms’ social concerns interacting with strategic trade policies on welfare effects, showing that the welfares of consumers and the world as a whole (resp., total welfare of producing countries) are a U-shaped (resp., an inverted U-shaped) function of the intensity of social concerns: this suggests that in some cases, rather unexpectedly, producing countries (resp. consumers) benefit (resp. are harmed) by raising firms’ social concerns.

Strategic Trade Policy in Reciprocal Dumping Model with Incomplete Information

This paper extends the conventional literature on strategic trade policy in reciprocal dumping model to the context that involves market demand uncertainty and incomplete information. In order to highlight the role of uncertainty and incomplete information, a simple scenario with linear asymmetric demand, additive stochastic market shock, homogeneous products, and identical constant marginal costs are considered. It is shown that incomplete information at industrial level redistributes the option value associated with better information to the country with the better informed firm. As a result, both governments tend to choose tariffs over export subsidies in the Nash equilibrium of the simultaneous strategic trade policy games under complete and incomplete information. This yields a second best outcome. Moreover, we show that Nash equilibrium outcome is inferior to free-trade outcome.

WTO 상소기구의 기능 변화와 전략적 통상정책(The Reform of the WTO's Appellate Body and its Implications on Strategic Trade Policies)

WTO 상소기구의 기능 변화와 전략적 통상정책(The Reform of the WTO's Appellate Body and its Implications on Strategic Trade Policies)

On the Equivalence of Tariffs and Quotas with Incomplete Information

This paper compares the social welfare effects of tariffs and quotas as strategic trade policy instruments in an oligopolistic industry where the domestic market demand is uncertain and the policy is chosen before the uncertainty is resolved. The uncertain demand, once realized, is assumed to be available only to the domestic firm when the output game is played between domestic and foreign firms. To highlight our assertion, a simple scenario with linear demand, additive stochastic market shock, homogeneous products, and identical constant marginal costs is considered. It is shown that a tariff is superior to a quota regardless of the degree of uncertainty. Moreover, we also show that a prohibitive quota that results in autarky is always preferred to a quota at the free-trade level.

Economic Rents and the Contours of Conflict in the Data-Driven Economy

In the era of continuous and steadily accelerating technological change that started with the industrial revolution, economies and societies were repeatedly transformed in ways that can be linked to ownership of the essential and scarce factor of production of the day and command of the economic rents that flow to that factor. While history allows many narratives to be spun, the contours of conflict, both internal and between states, can be seen as aligned with the contest over rents – from the wars of territorial acquisition of the feudal era when land was the main source rents, to the wars of mercantilist expansion when the economies of scale generated by the machinery of mass production became the main source of rent, to the resource-rent-fuelled oil wars of the modern era, and in recent decades the proliferating conflicts over intellectual property. With the digital transformation we are seeing the emergence of a new type of economy – the data-driven economy, in which data is the essential factor of production. Data generates massive rents, fuels the rise of superstar firms, and generates powerful incentives for strategic trade and investment policy. The emergence of this new economy signals a new era of conflict, on new battlegrounds, with new tools or weapons, between new coalitions within and amongst countries. This conflict is already upon us. The vast rents prospectively at play in the data-driven economy arguably constitute a major (perhaps the major) trigger for the open trade and technology war between the United States and China. They also are at the heart of the brewing conflicts over taxation of digital platform firms. This note describes the contours of the conflicts that are to be expected with the digital transformation as it realigns interests, compares these expectations with actual developments, and comments on the implications for the rules-based system of international commerce.

Corporate social responsibility and strategic trade policy: An endogenous timing game and its policy implications

AbstractThis study incorporates the corporate social responsibility (CSR) initiatives of a domestic firm and analyses strategic trade policy towards a foreign firm in a different market structure. We show that the tariff rate under a foreign (domestic) firm's leadership is lowest when the degree of CSR is large (small). We also show that the foreign firm's leadership yields the highest welfare when the degree of CSR is intermediate, while the domestic firm's leadership yields the highest welfare otherwise. In an endogenous‐timing game, we show that a simultaneous‐move outcome is the unique equilibrium when the degree of CSR is small; thus, it is never socially desirable. We also show that the domestic firm's leadership can be an equilibrium, which results in the highest welfare when the degree of CSR is large. Finally, when the degree of CSR is large, collusive behaviours between the domestic and foreign firms can increase welfare.

Welfare implications of upstream subsidy in the presence of countervailing duties under limited verifiability

This paper examines how a politically biased strategic export subsidy influences social welfare when an importing country imposes countervailing duties on imported goods if the subsidy is verified. Based on a simple model that integrates the political contribution provided by exporting firms and the verifiability problem of an export subsidy for the upstream firms within a vertically fragmented production process, this paper demonstrates that politically biased strategic export policies can deteriorate social welfare. Moreover, when it is more difficult to identify hidden government subsidies, welfare loss due to politically biased subsidy is increased. Interestingly, an importing country is not motivated to fully countervail the politically biased export subsidies when it is concerned about social welfare, including consumer surplus. These results provide an answer on why the conflicts over hidden subsidies are increasing with deepening fragmentation of exporting firms’ production processes. In addition, the results imply that it is imperative to make further efforts to enhance the verifiability of the hidden subsidies in order to reduce the welfare deterioration caused by the politically biased strategic trade policies.

Geoeconomic Disruption: A Comment on the Causes, Consequences and Policy Responses

The global economy is being reshaped through the overt use of economic power. This marks a point of rupture with the geoeconomic framework of the postwar period, which was largely built on the legalistic rules-based system that grew up under and around the GATT/WTO. In this essay, I interpret the developments through two inter-related lenses: trade and technology. I argue that geoeconomics is endogenous to the underlying economic conditions of the day. In the present instance, the driving force of change is the emergence of a new form of economy based on big data, artificial intelligence (AI) and machine learning (ML), which creates powerful incentives for strategic trade and investment policy to capture the vast benefits at stake. This disrupts a geoeconomic order whose creation was predicated on the win-win benefits of trade in an era dominated by industrial production. To shed light on the evolution of the conflict between China and the United States, the principal antagonists in the trade conflict to date, in terms of how power is being applied and with what consequences, I discuss the metrics of economic power. I identify four key metrics; the present episode of geoeconomic conflict features capabilities in all four areas being deployed based on the economic power assets of the conflicted economic powers. Finally, I discuss the implications of this outbreak of conflict for the geoeconomic order going forward in light of economic history, which suggests that geoeconomics is episodic in nature, that episodes feature often radically different behaviours from predecessors and successors, and that the characteristic institutions of each episode are creatures of their age. This prepares us for pervasive institutional change as the transition in geoeconomic orders unfolds.

The US-China Trade War: Technological Roots and WTO Responses

The outbreak in 2018 of a rapidly escalating trade war between the United States and China is a watershed event that is reshaping the global economic and political order. The main complaints made by the United States against China, while increasingly widely accepted and repeated, do not individually or collectively provide a compelling casus bellum. We must look to technological developments that induce strategic trade and investment policies to find a sufficiently valuable bone of contention to explain the conflict. By the same token, solutions framed around the US complaints will fail to restore trade peace. The necessary response is to reform the multilateral trade and investment framework to constrain the strategic behavior induced by the emerging data-driven economy and to channel the rivalry into constructive technological competition – for all parties.

Brexit and the Future of UK Capitalism

Brexit and the Future of <scp>UK</scp> Capitalism

Strategic Trade Policy Cina di Negara-Negara Sub-Sahara Afrika

&lt;p class="06IsiAbstrak"&gt;&lt;strong&gt;The Strategic Trade Policy of China in Sub-Saharan Africa Countries&lt;/strong&gt;.&lt;strong&gt; &lt;/strong&gt;In the past decade, Sub-Saharan Africa has been transformed into the 'rising continent'. The growth of the Sub-Saharan economy averages 6%. Some countries in Sub-Saharan are included in the most developed countries in the world. Economic growth, abundant natural resources, and a large population become the potential of Sub-Sahara to become a main trading partner for China as a global economic power. To enhance trade cooperation, China formed a Forum on China-Africa Cooperation (FOCAC). Through this forum, China offers a new development model, namely the Beijing consensus by prioritizing the principle of non-interference. This research aimes to find out the strategic trade policy of China to enhance economic benefits from multilateral cooperation. This research applies descriptive qualitative research method with the strategic trade policy as the research analytical framework. This research finds that China applies some of strategic trade policy in Sub Sahara Africa : sectoral targets, Special Economic Zones (SEZs), liberation of foreign investation, and export subsidies.&lt;/p&gt;&lt;p class="07KatakunciKeywords"&gt;Keywords: FOCAC Strategic Trade Policy (STP), Sub-Sahara Afrika&lt;/p&gt;&lt;p class="07KatakunciKeywords"&gt; &lt;/p&gt;

The US-China Trade War: Costs, Causes, and Potential Responses by Tier II Powers

The trade war between the United States and China is generating significant costs; it is rooted in the technological revolution based on big data, artificial intelligence and machine learning, which create the grounds for strategic trade and investment policies and geostrategic rivalry; and solutions must be based on addressing the elemental forces being unleashed by this technology rather than on ironing out nominal frictions that have arisen between the United States and China. This note argues for a new Digital Round at the WTO premised on the search for a global digital realm in which all countries have a mutual stake in ensuring its integrity, as opposed to a world of what might be termed “Digitalpolitik” (the digital version of realpolitik), which features walled off realms subject to mutual routine attack, with ruinous prospects for all.

'Flying High in a Plane' Appellate Body Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft (WT/DS316/AB/RW)

This article reviews the Appellate Body decision in the implementation phase of the EC – Aircraft dispute. Focusing on some of the key findings, we assess whether they are legally and economically correct. We conclude that a) though still unclear, the test for establishing de facto contingency on import substitution subsidies is probably too demanding; that b) though legitimate, the interpretation of the remedy of removal of the adverse effects for actionable subsidies is the weakest and most deferential possible; that c) the hesitation in confirming that quantitative methods are the key tool to define the relevant market is unwelcome; and that d) the Appellate Body correctly recognise the importance for Panels to consider, in the context of the serious prejudice analysis, whether the like product of the complainant has been subsidised. Most importantly, the analysis of this case, set within the broader jurisprudence and practice, has led us to conclude that WTO subsidy disciplines are not particularly strong. The review of the main economic theories justifying subsidy control (strategic trade policy, terms of trade, private information, commitment theory) has shown that no single theory is able to fully account for subsidies and the need to control them. The key question is the definition of what we want to achieve by controlling subsidies, which is the main message sent to the policy-makers and negotiators that are currently considering law reform.

Strategic Trade Policy and Endogenous Durability of Consumer Goods

Strategic Trade Policy and Endogenous Durability of Consumer Goods

Strategic trade and FDI policies in a unionized industry

This paper analyzes the differences between strategic trade and the competitionm policies (in the form of inward Foreign Direct Investment) to regulate a unionized monopoly in the domestic country. With decentralized negotiations both policies reduce labour and product market distortions. However the fixed cost for the foreign entrant and the degree of product differentiation determine which policy should be implemented to maximize national welfare, and the cases in which the domestic government can intervene, to achieve a Pareto-improvement.

On Economic Strategy in the Data-Driven Economy

The digital transformation is creating a new kind of economy – a data-driven economy (DDE) that builds on, but differs materially from, the knowledge-based economy (KBE) that preceded it and the industrial economy on which the KBE was based. The underlying economics of the DDE gives rise to powerful incentives for strategic trade and investment policy, which are already shaping policy responses of the economies with major interests in the digital economy. This note outlines the issues and considers the implications for the small open economy.

Export cartel and consumer welfare

AbstractThe purpose of this paper is to show that export cartels are not necessarily harmful for consumers in the importing countries. Using a strategic trade policy model, we show that, contrary to the harmful effect, product‐market cooperation benefits consumers by affecting the trade policies. We further show that consumers in the importing countries are affected adversely if cooperation is among the governments of the exporting countries, instead of the exporting firms.

Endogenous strategic trade policy: The case of the third market model

Using simple linear demand functions, we have shown that in the thircd market strategic trade policy model there cannot be Cournot-Bertrand or Bertrand-Cournot competition in equilibrium if the two firms choose strategic variables endogenously. More importantly, knowing that the firms will react to its policy in choosing their strategic variables, the government can indeed provide export subsidies to the home firm to maximize the home social welfare if some moderate, reasonable constraints are satisfied.

Strategic Trade Policy and Migration : The Case of Different Size Countries

Strategic Trade Policy and Migration : The Case of Different Size Countries

A reappraisal of strategic trade policies with the endogenous mode of competition under vertical structures

ABSTRACTThis paper examines the endogenous choice of competition mode with strategic export policies in vertically related markets when each upstream firm located in each country determines the terms of the two-part tariff contract by maximizing generalized Nash bargaining. We show that (i) choosing Cournot (Bertrand) competition is the dominant strategy for both downstream firms when goods are substitutes (complements), which leads Pareto superior regardless of the nature of goods under the optimal trade policies; (ii) irrespective of rival’s competition mode, the optimal trade policy is an export subsidy under Cournot competition and an export tax under Bertrand competition; and (iii) trade liberalization may give rise to changes of competition mode and increase of social welfare.