DP806 Trade Wars and Trade Talks

Author(s): Gene M. Grossman, Elhanan Helpman
Publication Date: May 1993
Keyword(s): Political Economy, Tariff Wars, Trade Negotiations, Trade Policy
JEL(s): D72, F13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=806

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.