Trade Negotiations Under Fire: Social Identity and the Rising Opposition to Free Trade

Massive protests against - and spectacular failures of - international trade negotiations are an important element of the globalization backlash developed economies have experienced over the last two decades. We analyze a model of endogenous social identity where the government chooses between accepting or rejecting a trade agreement involving the recognition of a lower precautionary standard. We show that protests by an NGO against the trade agreement can alter the social identity equilibrium, feeding back into the political process and possibly resulting in a polarization of society. We focus on two possible outcomes: the trade agreement may either be maintained, but at lower welfare gains than initially expected (the "CETA-case"), or it may be abolished altogether (the "TTIP-case).