Trade Policy Preferences Research Articles

Real Exchange Rates and Trade Protectionism

Real exchange rate movements are robustly related to the rise and fall of trade protectionism. I demonstrate this by presenting a theoretical model that incorporates the real exchange rate into a standard factor proportions model of trade policy preferences. The model demonstrates why some firms' trade policy preferences, and thus total demands for protectionism, change in response to real exchange rate movements. I evaluate the model with data on antidumping investigations in six industrialized countries between the late 1970s and 2004. The exercise suggests that the real exchange rate hypothesis offers a more compelling explanation for protectionist waves than the business cycle hypothesis.

Envy, Altruism and the International Distribution of Trade Protection

One important puzzle in international political economy is why lower-earning and less-skilled intensive industries tend to receive relatively high levels of trade protection. This pattern of protection holds even in low-income countries in which less-skilled labor is likely to be the relatively abundant factor of production and therefore would be expected in many standard political-economy frameworks to receive relatively low, not high, levels of protection. We propose and model one possible explanation: that individual aversion to inequality--both envy and altruism--lead to systematic differences in support for trade protection across industries, with sectors employing lower-earning workers more intensively being relatively preferred recipients for trade protection. We conduct original survey experiments in China and the United States and provide strong evidence that individual policy opinions about sector-specific trade protection depend on the earnings of workers in the sector. We also present structural estimates of the influence of envy and altruism on sector-specific trade policy preferences. Our estimates indicate that both envy and altruism influence support for trade protection in the United States and that altruism influences policy opinions in China.

Location equilibrium with endogenous rent seeking

This thesis consists of three essays in the fields of the political economy of international trade.Location Equilibrium with Endogenous Rent Seeking:This paper analyzes the location of manufacturing activities when regional policy is determined by endogenous rent seeking. Once lobbying for government transfers to regions is included in an economic geography framework with size asymmetries, the standard prediction that the larger region becomes the core when trade barriers are reduced no longer holds. The establishment of manufacturing production in the economically smaller region is increasing in the level of regional integration once trade becomes freer than a certain threshold value. When free trade prevails, the relocation of industry takes place up to the point where there are as many firms operating in the South as in the North. Furthermore, lobbying slows down the agglomeration process, whereas the home market magnification effect (Baldwin, 2000) becomes weaker.Endogenous Tariff Formation and the Political Economy of Trade Retaliation:This paper extends the notion of endogenous tariff formation under representative democracy by allowing for strategic interaction between governments. The model developed suggests that the ideological distribution in the electorate within a country affects the tariff setting behavior among its trading partners. The equilibrium tariffs in a country depend on the trade policy preferences of the ideologically neutral voters among such partners as well as on the distribution of their sector-specific factor ownership. Ideological shifts in the population which systematically alter the political power of different voter groups, or types of factor owners, in one country thus influence the tariff setting behavior in competing trading nations.On the Indeterminacy of Trade Policy under Different Electoral Rules:Current research has found ambiguous results with respect to the effects of the type of electoral regime on trade policy. The present paper proposes a solution to this indeterminacy. It is shown that the equilibrium level of trade protection can be relatively higher, as well as lower, under a majoritarian electoral rule compared to proportional representation. The framework developed in this paper thus includes as special cases earlier models reported in the literature. The equilibrium outcome is shown to depend on the number of voters in swing districts who own a factor specific to the exporting industry in relation to those who possess claims to the specific input employed by the import-competing sector. Using a cross section of countries, empirical evidence is consistent with this hypothesis.

Continuity in Discontinuity: The Domestic Political Economy of Trade Cooperation from 1860 to 1914

AbstractIn the literature on international trade, the second half of the nineteenth century is generally characterized as one with two very different faces: trade was liberalized from 1860 until the mid-1870s and turned protectionist again thereafter. This discontinuity in the development of commercial relations goes along with much continuity regarding the domestic goals governments pursued in international trade negotiations. The French executives' primary goal was to implement their trade policy in a way that created at least as many domestic political benefits as costs. One key instrument with which the French government pursued this objective was the form of cooperation, which is an often-neglected issue in the international relations literature. The comparative analysis of two cases of French trade policy making – the Anglo-French agreement of 1860 and the Méline tariff of 1892 – will highlight how bilateral cooperation was used as an instrument to accommodate the interests of domestic economic groups having contradictory trade policy preferences. Expanding this view to the twentieth century, it can be seen that the domestic political processes of 1860 and 1892 involve many elements that are considered basic to modern trade policy-making. It can be tentatively hypothesized that trade policy-making is characterized by a common logic of balancing societal support independently of the commercial policy that is implemented and the reasons for why it is sought.

Does Constituency Size Affect Elected Officials' Trade Policy Preferences?

Scholars have long argued that Presidents are less protectionist than Congress while Senators are less so than Representatives due to their larger constituencies. Yet until now this theory has escaped scrutiny. I argue that it is based on a misguided view of trade policy as distributive politics. I show via a series of tests that the theory is untenable. Unlike their differences in constituency size, the pro-trade leanings of the Presidency and Senate are postwar phenomena. Even now state size is unrelated to Senators’ votes on trade. In tests pooling legislators from both Houses, chamber membership predicts votes while constituency size generally does not. Senators are even less protectionist than Representatives with identical constituencies.

Jobs, Jobs, Jobs: A “New” Perspective on Protectionism

This paper analyzes the determinants of protectionism in a small open economy with search frictions. In this environment, jobs generate rents whose access depends on the level of trade protection. By raising the domestic price of a good, a government may attract more firms in a particular industry. This raises the probability that workers will find jobs in this sector, and in turn, will benefit from the associated rents. Though simple, this channel may help explain a variety of stylized facts on the structure of trade protection and individual trade-policy preferences.

Who Wants to Globalize? Consumer Tastes and Labor Markets in a Theory of Trade Policy Beliefs

Although the allure of consumption is the engine of globalization, political economists have tended to ignore varying consumer tastes as a potential source of beliefs about trade policy. This article develops a theory of trade policy preferences that adds the notion of varying consumer tastes to the standard labor-market application of the Heckscher-Ohlin trade model. The theory, which can explain trade preferences both across individuals and countries, is supported by an empirical analysis of survey data from 41 nations. Heavy consumers of exportables are found to be more protectionist than heavy consumers of imports and import-competing goods. Moreover, citizens in countries with expensive tradable goods see trade liberalization as a remedy to the rents they pay for protectionism. Other findings also support the more conventional labor-market side of the Heckscher-Ohlin model.

Who Wants to Globalize? Consumer Tastes and Labor Markets in a Theory of Trade Policy Beliefs

Although the allure of consumption is the engine of globalization, political economists have tended to ignore varying consumer tastes as a potential source of beliefs about trade policy. This article develops a theory of trade policy preferences that adds the notion of varying consumer tastes to the standard labor‐market application of the Heckscher‐Ohlin trade model. The theory, which can explain trade preferences both across individuals and countries, is supported by an empirical analysis of survey data from 41 nations. Heavy consumers of exportables are found to be more protectionist than heavy consumers of imports and import‐competing goods. Moreover, citizens in countries with expensive tradable goods see trade liberalization as a remedy to the rents they pay for protectionism. Other findings also support the more conventional labor‐market side of the Heckscher‐Ohlin model.

Who Supports Free Trade in Latin America?

This paper examines individual trade policy preferences across 17 countries in Latin America. The focus is on whether skilled or unskilled workers are more likely to support liberalised trade and on whether country characteristics, such as factor endowments, alter the preferences of skilled and unskilled workers. Based on the standard Heckscher-Ohlin model and the Stolper-Samuelson theorem, wage inequality in developing countries will decrease under free trade and unskilled workers will benefit. We find that on average skilled workers are more likely than unskilled workers to support free trade in Latin American countries. Separate country regressions reveal that this pattern is only statistically significant in 8 out of 17 Latin American countries. However, there are no countries in our sample in which unskilled workers are statistically more likely to support free trade than skilled workers, not even in the lowest skill-endowed country in the sample. We also find that people from Latin American countries with higher GDP, faster growth, more cropland and a longer period of time since reform were more likely on average to support free trade.

Back on Track

Challenging conventional wisdom, which suggests that constituency interests and membership ideology guide legislative voting on trade, we argue that the relative importance of these factors fluctuates depending on party control of the presidency. Such is the casewith the House of Representatives opposing fast-track trade negotiating authority in 1997 and 1998 and then supporting trade-promotion authority in 2001. The shifting political context represented by the change in partisan control of the presidency changed the salience of ideology and constituency factors among House Republicans, leading to major trade policy changes. Using logit analysis for position taking in the House on fast track, we explore the relative effects of a variety of cross pressures on trade policy preferences across time.

Four Simple Tests of Campaign Contributions and Trade Policy Preferences

This paper uses campaign contribution data to examine trade policy preferences among political action committees. With perfect factor mobility, as the Heckscher–Ohlin (HO) model assumes, interest group trade positions should depend on their factor of production but not on their industry. We show, consistent with the 2 × 2 HO model, that capital groups consistently back representatives supporting trade liberalization while labor groups favor protectionists. Unlike previous work, we also measure the variation in trade policy preferences within capital and labor groups. We find evidence that the industry net export position significantly affects labor unions' trade policy preferences. Industry characteristics have no impact on capital group lobbying. The former result suggests that empirical analyses of labor PAC contributions that exclude industry characteristics may be misspecified.

Why is Trade Reform So Popular in Latin America?: A Consumption-Based Theory of Trade Policy Preferences

Despite wavy national economies and a perception among observers that economic globalization is growing increasingly unpopular, aggregate support for free trade remains quite high across Latin America. This finding is robust to the wording of survey questions and has been quite resilient through time, even in the face of economic stagnation. Current theories of trade preferences, including the widely applied Heckscher-Ohlin model, do not explain this trend. Instead, the author proposes a theory of trade preferences based not on what citizens produce but on what they consume. Statistical analyses of different surveys, including one conducted in fourteen Latin American countries, demonstrate that a consumption-based approach best accounts for trade preferences across individuals and countries. Moreover, the theory provides an explanation for the overall popularity of free trade in Latin America: citizens recognize and appreciate the lower price, increased variety, and higher quality of goods that have come in the wake of trade liberalization.

Delegation, Ratification, and U.S. Trade Policy

Recent research on executive-legislative relations concludes that divided government causes higher tariffs and inhibits international cooperation. I find that divided government leads to lower U.S. tariffs in the postwar period and that the theoretical connection between divided government and international cooperation is viable only as a special case. In the contemporary United States, trade policy preferences do not adhere to party lines: Democratic Congresses are more protectionist than Republican Congresses, but Democratic presidents are less protectionist than their Republican counterparts. The divergence of executive-legislative preferences is thus greater under unified government than under divided government. As a cross-national hypothesis, the claim that divided government inhibits international cooperation holds only if some special restrictions on partisan preferences are met. These conditions are unlikely to survive as generalizations about democratic polities, rendering implausible the connection between divided government and reduced international cooperation.

What determines individual trade-policy preferences?

This article provides new evidence on the determinants of individual trade-policy preferences using individual-level survey data for the United States. There are two main empirical results. First, we find that factor type dominates industry of employment in explaining support for trade barriers. Second, we find that home ownership also matters for individuals’ trade-policy preferences. Independent of factor type, home ownership in counties with a manufacturing mix concentrated in comparative-disadvantage industries is correlated with support for trade barriers. This finding suggests that, in addition to current factor incomes driving preferences as in standard trade models, preferences also depend on asset values.

TRADE POLICY IN TRANSITION? political economy of antidumping in Japan

This article examines antidumping policy and politics in Japan. on detailed analysis of the institutional system regarding antidumping and the filed dumping cases, I explore how evolving trade policy preferences of the Ministry of International Trade and Industry (MITI) have antidumping policy and politics, and what has altered MITI policy In the 1980s, MITI bureaucrats sought to settle dumping issues by encouraging the industries concerned to hold inter-industry meetings and pursuing bilateral voluntary export restraints. As Japan has accumulated trade disputes with developed countries, MITI officials have over time a strict application of the antidumping legislation on the basis of the principles embodied in the international trading system.

Geography, International Trade, and Political Mobilization in U.S. Industries

posed industries, geographic concentration strongly increases (a) the formation of common trade policy preferences among workers; (b) employees' contributions to political campaigns; and (c) voter turnout. This activism traces not to the behavior of political elites, but rather to the increased possibility for collective action that spatial proximity affords individuals in trade-exposed industries. ,eS ~ eography is everywhere in vogue. From studies of Silicon Valley effects and industrial agglomeration (Audretsch 1998; Dyer 1994) to the pricing practices of monopolies, from corporate alliances to regional economic development (Porter 1998), the spatial proximity of firms is shedding new light on some of the most enduring puzzles in business and economics. Yet despite this interest in industrial clusters, few studies have asked-and fewer still have empirically assessed-how spatial proximity conditions an industry's political behavior. This link is particularly important for sectors exposed to international trade, given the longstanding debate over how geographic concentration affects an industry's ability to secure import relief. Recent studies (Busch and Reinhardt 1999; McGiliivray 1997) find that spatially proximate industries are, indeed, more successful in gaining protection, although the mechanisms by which they exert greater political influence remain little understood. We seek to explain how geographic concentration facilitates political mobilization on the part of trade-exposed industries. Geographic concentration bolsters an industry's capacity for collective action. In particular, as a wide variety of literatures insists, spatial proximity facilitates greater face-to-face communication, aids in the diffusion of specialized political knowledge, provides the basis for denser social networks, and enables more effective monitoring and sanctioning of those who might free-ride on the political contributions of others. In short, individuals in geographically concentrated groups are more likely to recognize and act upon their collective interests. Yet spatial proximity alone is not sufficient to motivate political mobilization: underlying common interests must exist as well. Looking at manufacturing industries, we hypothesize

Divided Government and U.S.Trade Policy: Much Ado About Nothing?

Scholars assert that divided government impedes the liberalization of U.S. trade policy. They claim that presidents favor freer trade and will use the negotiating authority Congress delegates to them to reach agreements lowering trade barriers. Since presidents gain more support from their congressional co-partisans, less liberalization ensues under divided government. This theory rests on the premise that party is unrelated to congressional trade policy preferences beyond legislators' tendencies to support their presidential co-partisans. Yet before 1970 congressional Democrats were relatively free trading regardless of the president's party affiliation. Since then, the same has been true of Republicans. Divided government facilitates the trade policies of presidents from the protectionist party since they win more support from their “opposition” in this area. Divided government does impede the efforts of presidents from the free-trading party to liberalize. I conclude that divided government has no consistent effect on trade policy outcomes.

THE POLITICAL ECONOMY OF INTERNATIONAL TRADE

▪ Abstract One of the most salient changes in the world economy since 1980 has been the move toward freer trade among countries across the globe. How do existing theories about trade policy explain this puzzle? Three sets of explanations are prominent. First, many focus on changes in trade policy preferences among domestic actors, either societal groups or political leaders. Second, scholars examine changes in political institutions to account for such policy change. Third, they seek explanations in changes in the international political system. Large-scale changes in political institutions, especially in the direction of democracy, may be necessary for the kind of massive trade liberalization that has occurred. But changes in preferences cannot be overlooked in explaining the rush to free trade. Moreover, the influence of international institutions has been important. Finally, the reciprocal impact of trade on domestic politics and the international political system is important. If the rush to free trade is sustained, will its impact be benign or malign?

Economic interdependence and the making of trade policy: Industrial demand for an open market in Japan

The central question of this article is how the internationalization of corporate activity has changed the trade policy preferences of Japanese corporations. Using case studies of the automobile and textile industries, the paper tests the hypothesis that as firms strengthen multinational operations, they become more committed to trade liberalization of their home market. Growing multinational operations are one of the major reasons why internationally‐oriented automakers have committed themselves to promoting the opening of keiretsu groups as well as the market access for foreign products. In the textile industry, apparel makers opposed import restrictions because of their overseas productions and intra‐firm trade. Towel manufacturers also opposed restrictions on imports of cotton yarn because they were users of imported yarn. However, large textile producers supported import restrictions in spite of their international links. Their preferences stemmed largely from their desire to maintain their domestic linkages with downstream producers.

Free trade or protection? belgian textile and clothing firms’ trade preferences

Free Trade or Protection? Belgian Textile and Clothing Firms' Trade Preferences. -This paper examines the positions of Belgian textile and clothing firms on trade policies. Observations on positions are generated by a survey. Along the lines of the political economy of protection and anti-protection we test whether firm-specific characteristics influence textile and clothing firms' trade policy preferences. The results show that international competition and having foreign establishments significantly determine firms' positions, but that product differentiation does not. A Chow test indicates no significant difference between firms' sensitivities in the textile and clothing industries. This suggests that the two professional organizations should co-operate on trade issues.