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Between free trade and protectionism: strategic trade policy and a theory of corporate trade demands


  • Milner, Helen V.
  • Yoffie, David B.


Conventional theories of the political economy of trade argue that industries in import-competing businesses favor protectionism, while multinational firms and export-dependent corporations advocate unconditional free trade. However, many multinational industries have recently advocated “strategic” trade policies: that is, they are willing to support free trade at home only if foreign markets are opened or foreign governments reduce subsidies to their firms. If demands for strategic trade policy were adopted by the United States, they could represent a threat to the General Agreement on Tariffs and Trade (GATT) and the multilateral trading system. This article seeks to explain the emergence of these new corporate trade demands and thereby broaden theories of the political economy of trade. The article begins with the widely supported position that multinational and export-oriented firms prefer unconditional free trade. Building on concepts from theories of industrial organization and international trade, the article then hypothesizes that rising economies of scale and steep learning curves will necessitate that these firms have access to global markets via exports. If growing dependence on world markets is combined with foreign government subsidies or protection, the trade preferences of firms will shift from unconditional free trade to demands that openness at home be contingent on openness overseas. The manner in which firm demands then get translated into industry demands will vary with the industry's structure. If the industry consists of firms with symmetric strategies, it will seek strategic trade policy; but if the industry is highly segmented, it will turn toward protectionism. The article concludes with a preliminary test of these hypotheses in four brief studies of the politics of trade in the semiconductor, commercial aircraft, telecommunications equipment, and machine tool industries.

Suggested Citation

  • Milner, Helen V. & Yoffie, David B., 1989. "Between free trade and protectionism: strategic trade policy and a theory of corporate trade demands," International Organization, Cambridge University Press, vol. 43(02), pages 239-272, March.
  • Handle: RePEc:cup:intorg:v:43:y:1989:i:02:p:239-272_03

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    References listed on IDEAS

    1. Antoine Gervais & J. Bradford Jensen, 2013. "The Tradability of Services: Geographic Concentration and Trade Costs," NBER Working Papers 19759, National Bureau of Economic Research, Inc.
    2. Alan S. Blinder & Alan B. Krueger, 2013. "Alternative Measures of Offshorability: A Survey Approach," Journal of Labor Economics, University of Chicago Press, vol. 31(S1), pages 97-128.
    3. Edward E. Leamer, 2007. "A Flat World, a Level Playing Field, a Small World After All, or None of the Above? A Review of Thomas L Friedman's The World is Flat," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 83-126, March.
    4. repec:cup:apsrev:v:83:y:1989:i:02:p:567-573_08 is not listed on IDEAS
    5. repec:cup:apsrev:v:105:y:2011:i:01:p:166-188_00 is not listed on IDEAS
    6. repec:cup:apsrev:v:96:y:2002:i:03:p:593-608_00 is not listed on IDEAS
    7. J. Bradford Jensen, 2011. "Global Trade in Services: Fear, Facts, and Offshoring," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6017.
    8. Ron S Jarmin & Javier Miranda, 2002. "The Longitudinal Business Database," Working Papers 02-17, Center for Economic Studies, U.S. Census Bureau.
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    Cited by:

    1. Cornelia Woll, 2007. "Leading the Dance? Power and Political Resources of Business Lobbyists," Sciences Po publications info:hdl:2441/8602, Sciences Po.
    2. repec:spo:wpecon:info:hdl:2441/8527 is not listed on IDEAS
    3. Henisz, Witold J. & Zelner, Bennet A., 2006. "Interest Groups, Veto Points, and Electricity Infrastructure Deployment," International Organization, Cambridge University Press, vol. 60(01), pages 263-286, January.
    4. Pierre-Olivier Peytral, 2004. "Economie politique de la politique d'ouverture commerciale mixte : interactions entre les groupes sociaux et l'Etat," Post-Print halshs-00104875, HAL.
    5. repec:spo:wpecon:info:hdl:2441/8526 is not listed on IDEAS
    6. Rixen, Thomas & Rohlfing, Ingo, 2005. "The Political Economy of Bilateralism and Multilateralism: Institutional Choice in Trade and Taxation," MPRA Paper 325, University Library of Munich, Germany, revised 2005.
    7. Cornelia Woll & Alvaro Artigas, 2007. "When Trade Liberalization Turns into Regulatory Reform: The Impact on Business-Government Relations in International Trade Politics," Sciences Po publications info:hdl:2441/8526, Sciences Po.
    8. Eden, Lorraine & Molot, Maureen Appel, 2002. "Insiders, outsiders and host country bargains," Journal of International Management, Elsevier, vol. 8(4), pages 359-388.
    9. repec:spo:wpecon:info:hdl:2441/8602 is not listed on IDEAS
    10. Keillor, Bruce D. & Boller, Gregory W. & Ferrell, O. C., 1997. "Firm-level political behavior in the global marketplace," Journal of Business Research, Elsevier, vol. 40(2), pages 113-126, October.
    11. Cornelia Woll, 2007. "From National Champions to Global Players? Lobbying by Dominant Providers during the WTO's Basic Telecom Negotiations," Post-Print hal-00972815, HAL.
    12. Cornelia Woll & Alvaro Artigas, 2007. "When Trade Liberalization Turns into Regulatory Reform: The Impact on Business-Government Relations in International Trade Politics," Post-Print hal-01071209, HAL.
    13. Cornelia Woll, 2005. "Learning to Act on World Trade. Preference Formation of Large Firms in the United States and the European Union," Working Papers hal-01065571, HAL.
    14. Cornelia Woll, 2007. "From National Champions to Global Players? Lobbying by Dominant Providers during the WTO’s Basic Telecom Negotiations," Sciences Po publications info:hdl:2441/8527, Sciences Po.

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