Why do states fight for national champions in some high-technology industries but not in others? Why do states invest more resources waging certain of these fights? And why, when they fight, do states sometimes cooperate with each other to ease trade tensions but at other times not? The book argues that states fight for national champions in industries exhibiting external benefits that other domestic industries can make use of, that they fight harder where these benefits tend not to diffuse beyond national borders, and that they are more likely to seek to ease trade tensions where both sides are made worse off as a result of these strategic-trade policies. In short, the book explains when commercial rivalries in high technology are likely to heat up, how these commercial rivalries are likely to unfold, and which ones are likely to be brought back from the brink of a trade war.

This chapter is in two parts. The first section explains and operationalizes the argument and takes up issues of evidence and case selection. The next section offers a competing explanation drawn from endogenous protection theory, and details hypotheses with a claim on each of the case studies presented in the chapters that follow.

THE CALCULUS OF STRATEGIC TRADE

In explaining why states might intervene on behalf of their national champions in high technology, scholars focus either on rents or externalities. Rents are returns to an input in excess of what that same input could earn in another activity.