EconPapers    
Economics at your fingertips  
 

Protection and retaliation: changing the rules of the game

Catherine Mann ()

No 309, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: An examination of the macroeconomic, political, and institutional environment of the 1930s and the 1980s suggests a set of stylized facts associated with periods of trade tension and incidents of trade retaliation. Periods of macroeconomic stress precipitate changes in the conduct of and implementation of U.S. trade policy, which then can lead to escalating trade tension, protectionist measures, and perhaps retaliation. Macroeconomic stress, especially when linked to external events, decreases the political benefits of following a liberal trade policy and changes the economic consequences of following a particular trade strategy. As a result, it may be difficult for trading partners to predict the conduct of U.S. trade policy. Moreover, in reexamining its commitment to free trade, the United States may change its response to policies abroad. Finally, the United States may not only deviate from its established behavioral norms, but may also stray from the consensual international code of trade conduct. ; These stylized relationships between macroeconomic environment and political and institutional pressures are applied to a simple game-theory paradigm. Changes in the environment and balance of political power change the elements of a payoff matrix. The policy implications of the model are that the United States should, subject to the constraints of a democracy, make clear both the direction of its trade policy and the magnitudes of any penalties. Much of the tit-for-tat trade retaliation observed in recent months may represent just such a communications effort.

Keywords: International trade; Game theory (search for similar items in EconPapers)
Date: 1987
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.federalreserve.gov/pubs/ifdp/1987/309/default.htm (text/html)
http://www.federalreserve.gov/pubs/ifdp/1987/309/ifdp309.pdf (application/pdf)

Related works:
Journal Article: Protection and Retaliation: Changing the "Rules of the Game" (1987) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:309

Ordering information: This working paper can be ordered from
http://www.federalreserve.gov/pubs/ifdp/order.htm

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ().

 
Page updated 2019-06-25
Handle: RePEc:fip:fedgif:309