Understanding international trade policies Odell
• Why do governments act as they do in matters of international trade? four
different perspectives: they emphasize market conditions, leaders’ values and
beliefs, national political institutions and globalpolitical economic structures.
Market Perspective: market conditions shape trade politics and policies.
EX: in the US free trade is best for the country, but not for as some weak national
industries. Thus they organize politically to press for protection, and the government
protects their products. → the ones affected (household consumers) usually do not
express their interests politically.
• Politics is a process of exchange among individuals who behave according to
their short run personal interests: a protectionist market makes sense because
rent seeking industries trade their votes and campaign contributions to politicians.
• When markets shift, so the distribution of political pressures: thus the
government policies shift as well.
• The concept of endogenous policy generates the following paradox: in a
highly competitive political system, the equilibrium policies are not under control
of the policymakers → in the case of protectionism, trade restriction balance the
power of narrow interests (lobbies), against the power of broad interests (voters).
• This theory is very useful, yet can be misleading if analyzed alone: it is one
thing to focus on economic markets, and another one is to assume that politics
itself is a market, and that government is nothing else than an auctioneer
responding to society. Most of these works abstract form international relations
altogether → when reading studies from a market perspective, we forget about
power imbalances, trade wars, cartel arrangements, international organizations
and liberalizing negotiations that have defined commercial history. → These
omissions are accepted, however, because they make a tradeoff between
parsimony and accuracy.
Industrial Market Conditions:
• National markets change over time through structural shifts in factor
endowments: In the US, labor benefits disproportionately from protection; as
labor’s share in production declines, its relative political influence also declines,
as so should the fortune of the political party tied to it → thus protection also
• When times are good, factors tend to stay out of politics: yet, when the factors
economic fortunes goes down, it transfers its economic activity into lobbying and
• Over time and across industries policy preferences are expected to vary with
the industry or firm’s position in the economy:
o With rising import penetration and declining returns on capital, wages and
employment rates, industries are expected to favor increasing protection
for themselves. o The greater the industry’s dependence on exports and foreign investments,
the more it should resist demands for protectionism and favor import
• Government seen as an intermediary: responding to voters and groups
attempting to maximize short run direct selfinterests.
• Contradictions about the assumption that the key divide lies between L and
o Classes do not often behave as units in trade politics.
o Republican administrations sometimes favored more protectionism than
Interdependence and Anti Protection pressures:
• This theory postulates on industry’s political demands, and not policy itself as the
• Increasing interdependence over the decades increases the likelihood that firms in
the same industry will diverge in the degree of their international orientation,
dividing more sectors politically when they confront an import challenge.
• Firms least dependent of exports and multinational operations tend to respond to
import competition by calling for protection.
• Firms more internationalized tend to prefer free trade, despite the import
penetration at home.
• EX: the demand for protection was more muted in the 70’s (more economic
interdependence) than it was in the 20’s (less economic interdependence).
Macro market Conditions:
• It is the country’s relative economic position which counts for trade balance:
this logic links changes in the macroeconomy to changes in exchange rates and
trades flows → which affect output and employment aggregates at home → which