Intra-Industry Trade, Global Value Chains, and the Political Economy of Selective Trade Protection

Recent trade wars have confronted the trade policy literature with a major puzzle. How can we explain protectionist tendencies in the context of global economic integration? In this article, I aim to provide an answer to the question why, and under which conditions, internationally oriented companies are in favor of trade restrictions. More specially, I argue that intra-industry trade (IIT) and global value chains (GVCs) give rise to internally conflicting interests on the part of firms, generating incentives to lobby for specific, targeted measures against their closest competitors. To test whether firms’ preferences are translated into trade policies pursued by governments, I use data on trade barriers imposed by Brazil, Canada, China, the European Union, India, Japan, Russia, and the United States. I find compelling evidence that the levels of IIT and to a lesser extent trade in GVCs positively affect the decision to implement selective trade measures—such as bilateral tariffs and antidumping duties—rather than broader forms of trade protection. This result suggests that IIT and GVCs have structurally altered firms’ attitudes toward trade barriers and, consequently, the way in which countries protect their domestic markets against foreign competition.