Positive Feedback: The Impact of Trade Liberalization on Industry Demands for Protection
38 Pages Posted: 9 May 2008
This article proposes a theory of dynamic industry preferences and strategies to explain variation in industries' demand for trade protection over time. This theory shows how the characteristics of industries affect their demand for trade policy and how, in turn, trade policy transforms industry characteristics. An important implication of this theory is that trade liberalization tends to reduce, rather than increase, industry demand for protection over the long term. The article begins by developing a static model of industry decision making that illustrates how producers faced with a reduction in trade barriers weigh the costs and benefits of political action and economic adjustment. It then explains how the strategic choices of an industry are determined by key industry characteristics that evolve over time in response to changes in trade policy and market conditions. In particular, it demonstrates that reductions in trade barriers may have a positive feedback effect that dampens rather than amplifies domestic protectionist sentiment. To test this model, the article examines the dramatic postwar transformation of three industries that have historically demanded and received extensive import protection: the footwear, textile, and apparel industries. The article concludes with an assessment of the model and a discussion of its possible implications for our understanding of the politics of trade policy.
Keywords: trade, international law, trade law, footwear, apparel, textiles, positive feedback
JEL Classification: K33, F10
Suggested Citation: Suggested Citation