Consumer Nationalism and Multilateral Trade Cooperation

We investigate the implications of consumer nationalism for multilateral trade cooperation. We develop a two-country, two-firm model, in which the firms produce horizontally differentiated products and act as Bertrand competitors. Assuming that there is asymmetry in consumer nationalism between countries, we show that the country with the (relatively more) nationalist consumers can sustain more liberal trade policies than its trade partner in a repeated-game setting. Moreover, its most cooperative equilibrium tariff is actually decreasing in the level of its consumers' nationalism, provided that countries are not too patient. On the other hand, asymmetric consumer nationalism across countries produces an anti-cooperation effect on the incentives of the country with the non-nationalist consumers.