An Alternative to Free Trade or Protectionism: Why Corporations Seek Strategic Trade Policy

Conventional theories of the political economy of trade argue that industries in importcompeting businesses favor protectionism while multinationals and export-dependent corporations advocate unconditional free trade. However, many multinational industries have recently advocated “strategic” trade policies: i.e., potential closure of the domestic market if foreign markets remain closed or if foreign government subsidies are not reduced. This article explains why companies seek strategic trade policy. If an industry is characterized by firms with symmetric strategies, it will seek strategic trade policy; but if the industry is highly segmented, it is more likely to become protectionist. The article presents four studies of the politics of trade in semiconductors, commercial aircraft, telecommunications, and machine tools. It concludes that demands for strategic trade policy are likely to increase, with widespread implications for both firms and the U.S. government.