| Summary: | The formation of strategic trade barriers is investigated within a game-theoretic lobbying model. In the model, trade barriers comprise a political component and a strategically retaliatory component that serves to prevent foreign protectionism, and within this theoretical framework, the best policy is to establish retaliatory barriers against all imports, even though the partner country protects only a subset of goods that are traded. Testing this theory using cross-industry U.S. nontariff barrier (NTB) statistics against nine developed countries in 1983 reveals that bilateral nontariff barriers erected by the U.S. against these nine nations have a significant and large retaliatory element. This is surprising, as General Agreement on Tariffs and Trade/World Trade Organization rules prohibit explicit retaliation except under special circumstances. The structure of U.S. NTBs in 1983 implies that domestic trade rules that permit protection in the form of antidumping duties, countervailing duties, voluntary export restraints, and quotas also allow some latitude in strategically reacting to protection in its partner nations.
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