Industrial Policy and International Cooperation

Abstract

Industrial policy interventions affecting international trade and investment are motivated by a mix of economic and noneconomic objectives. Some are explicitly protectionist, targeting an expansion of domestic production, others are not but have adverse impacts on trade, reducing the potential role of trade as a means to help attain noneconomic objectives efficiently. The prospects for open trade to contribute to the realization of noneconomic objectives are enhanced if states consider the extent to which they have similar goals and cooperate in designing industrial policies to attain them. Cooperation to attenuate negative spillovers and improve the prospects of attaining underlying goals is in the self-interest of states. Arguments that international cooperation on industrial policy is politically infeasible or constitutes an undesirable erosion of sovereignty are misconceived given the significant opportunity costs of uncoordinated unilateral industrial policy interventions.