1. In this regard, little has changed in the ten years following Harry Johnson's comprehensive survey. Johnson, Harry G., “International Trade Theory and Monopolistic Competition Theory,” in Kuenne, R. E., ed., Monopolistic Competition Theory: Studies in Impact: Essays in Honor of E. H. Chamberlin (New York: Wiley, 1967), pp. 203–18.Google Scholar

2. Johnson, Harry G., “Optimum Tariffs and Retaliation,” Review of Economic Studies 21 (1953–1954), pp. 142–53.CrossRefGoogle Scholar

3. Hirschman, Albert O., Essays in Trespassing: Economics to Politics and Beyond (Cambridge: Cambridge University Press, 1981), pp. 13–24Google Scholar; Meier, Gerald M., Leading Issues in Economic Development, 4th ed. (New York and Oxford: Oxford University Press, 1984), pp. 111–47Google Scholar; Krueger, Anne O., “Trade Policies in Developing Countries,” in Jones, R. W., ed.. International Trade: Surveys of Theory and Policy (selections from the Handbook of International Economics) (Amsterdam: North-Holland, 1986), pp. 131–81Google Scholar. As Krugman candidly admits, “Lack of formalization essentially barred alternatives to comparative advantage, however plausible, from the mainstream of international economics.” Krugman, Paul R., “New Theories of Trade Among Industrial Countries,” American Economic Review 73 (05 1983), p. 343Google Scholar. While mainstream economics reluctantly tolerated the “infant-industry” argument for intervention, it was not accepted as a “first-best” argument for interfering with free trade, as discussed in a subsequent section of this article.

4. The original contributions, which appeared in the late 1970s and early 1980s, mostly in the form of journal articles, are too numerous to cite. An early synopsis was attempted by Krugman, , “New Theories of Trade,” pp. 343—47Google Scholar; and Grossman, Gene M. and Richardson, J. David, Strategic Trade Policy: A Survey of Issues and Early Analysis, Special Papers in International Economics, no. 15 (Princeton: International Finance Section, 1985)Google Scholar. Several conference volumes include contributions from the principal proponents of the new international economics as well as pertinent references: Kierzkowski, Henryk, ed., Monopolistic Competition and International Trade (Oxford: Clarendon Press, 1984)Google Scholar; and Krugman, Paul R., ed., Strategic Trade Policy and the New International Economics (Cambridge, Mass.: MIT Press, 1986)Google Scholar. See also the text by Helpman, Elhanan and Krugman, Paul R., Market Structure and Foreign Trade (Cambridge, Mass.: MIT Press, 1985)Google Scholar; and essays edited by Greenaway, David and Tharakan, P. K. M., Imperfect Competition and International Trade: The Policy Aspects of Intra-Industry Trade (Brighton: Wheatsheaf Books, 1986).Google Scholar

5. Dixit, Avinash K., “Trade Policy: An Agenda for Research,” in Krugman, Strategic Trade Policy, p. 283.Google Scholar

6. See the following articles by Brander, James A. and Spencer, Barbara J.: “Tariffs and the Extraction of Foreign Monopoly Rents and Potential Entry,” Canadian Journal of Economics 14 (08 1981), pp. 371–89CrossRefGoogle Scholar; “Tariff Protection and Imperfect Competition,” in Kierzkowski, , Monopolistic Competition and International Trade, pp. 194–206Google Scholar; “Tariffs, Trade Warfare: and Cartels, ,” Journal of International Economics 16 (05 1984), pp. 227—42Google Scholar; “Export Subsidies and International Market Rivalry, Share,” Journal of International Economics 18 (02 1985), pp. 833–100Google Scholar; and “International R” Review of Economic Studies 50 (October 1983), pp. 707–22.Google Scholar

7. Krugman, Paul R., “Import Protection as Export Promotion: International Competition in the Presence of Oligopoly and Economies of Scale,” in Kierzkowski, Monopolistic Competition and International Trade, pp. 180–93.Google Scholar

8. Krugman, , “New Theories of Trade,” pp. 343–47Google Scholar; and Richardson, J. David, “The New Political Economy of Trade Policy,” in Krugman, Strategic Trade Policy, pp. 257–82.Google Scholar

⁹ .Balassa, Bela, “Tariff Reductions and Trade in Manufactures Among the Industrial Countries,” American Economic Review 56 (06 1966), pp. 466–73.Google Scholar

10. Stegemann, Klaus, Wettbewerb und Harmonisierung im Gemeinsamen Murkt (Cologne: Carl Heymanns, 1966), especially pp. 89–107Google Scholar dealing with “growth competition” among industrial states.

11. Posner, M. V., “International Trade and Technical Change,” Oxford Economic Papers, n. s. 13 (10 1961), pp. 323–41CrossRefGoogle Scholar; Kindleberger, Charles P., Foreign Trade and the National Economy (New Haven, Conn.: Yale University Press, 1962), pp. 84–98.Google Scholar

12. Johnson, Chalmers A., MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975 (Stanford, Calif.: Stanford University Press, 1982).Google Scholar

13. Jacquemin, Alexis, The New Industrial Organization: Market Forces and Strategic Behaviour (Cambridge, Mass.: MIT Press, 1987)Google Scholar. The subject of this article is discussed in the final chapter of Jacquemin's book, pp. 168–82. See also Krugman, Paul R., “Industrial Organization and International Trade,” in Schmalensee, R. and Willig, R., eds., Handbook of Industrial Organization (Amsterdam: North-Holland, forthcoming).Google Scholar

14. A comprehensive survey of models of intra-industry trade can be found in Green-away, David and Milner, Chris, The Economics of Intra-industry Trade (Oxford: Basil Blackwell, 1986), pp. 7–55Google Scholar. It should be noted that Chamberlin used the term “monopolistic competition” to cover both his “large group case” and his “small group case.” Chamberlin, Edward H., The Theory of Monopolistic Competition (Cambridge, Mass.: Harvard University Press, 1933)Google Scholar. Current usage in economics reserves the term monopolistic competition for the large group case, whereas Chamberlin's small group case is called “oligopoly.” As will become apparent below, models of strategic trade policy always assume the small group case, indeed usually the smallest group possible, duopoly. But oligopolistic structures have also been used to model intra-industry trade.

15. Greenaway, David and Tharakan, P. K. M., “Imperfect Competition, Adjustment Policy, and Commercial Policy,” in Greenaway and Tharakan, Imperfect Competition and International Trade, pp. 11–19.Google Scholar

16. Brander, James A., “Intra-industry Trade in Identical Commodities,” Journal of International Economics 11 (01 1981), pp. 1–14.CrossRefGoogle Scholar

17. The reasons for this shift have been summarized admirably in J. David Richardson, “The New Political Economy of Trade Policy,” pp. 259–70. As shown in detail by Destler, the capacity of U.S. institutions to resist protectionist pressures had been eroding for many years prior to the early 1980s, when protectionist forces appeared to gain the upper hand. Destler, I. M., American Trade Politics: System Under Stress (Washington, D.C.: Institute for International Economics, and New York: Twentieth Century Fund, 1986), chaps. 3–8Google Scholar. For a.qualifying view, see Goldstein, Judith L., “The Political Economy of Trade: Institutions of Protection,” American Political Science Review 80 (03 1986), pp. 161–84.CrossRefGoogle Scholar

18. Richardson, , “The New Political Economy of Trade Policy,” p. 266.Google Scholar

19. Borrus, Michael, Responses to the Japanese Challenge in High Technology: Innovation. Maturity, and the U.S.–Japanese Competition in Micro-electronics (Berkeley, Calif.: Berkeley Roundtable on the International Economy, 1983).Google Scholar

20. Krugman, , Strategic Trade Policy, pp. 18–19Google Scholar; and Borrus, Michael, Tyson, Laura D'Andrea, and Zysman, John, “Creating Advantage: How Government Policies Shape International Trade in the Semiconductor Industry,” in Krugman, Strategic Trade Policy, pp. 92–94.Google Scholar

²¹ .Harris, Richard G., Trade, Industrial Policy and International Competition (Toronto: University of Toronto Press, 1985).Google Scholar

22. Definitions of “industrial policy” vary. For the purpose of this article, Brander's suggested definition is most appropriate: “Industrial policy should be thought of as involving some form of industry-, firm-, or project-specific policy (targeting), and arising from a coordinated government plan to influence industrial structure in particular, well-defined ways (coordination).” Brander, James A., “Shaping Comparative Advantage: Trade Policy, Industrial Policy, and Economic Performance,” in Lipsey, R. G. and Dobson, W., eds., Shaping Comparative Advantage, Policy Study no. 2 (Toronto: C. D. Howe Institute, 1987), p. 29Google Scholar. Having surveyed the writings of principal proponents of a coordinated industrial policy for the United States (ibid., pp. 28–42), Brander found to his surprise that “the industrial policy advocates reviewed here all claim to oppose protection and to support an open trading system” (ibid., p. 52). Yet this seems to be a matter of semantics. Targeting of traded products or of “strategic” sectors, in competition with other industrial states, almost inevitably (and deliberately) affects international trade. Thus, the borderline between trade policy and other instruments of industrial policy becomes blurred if one considers targeting of specific goods or industries in a strategic international context. Indeed, proponents of a common industrial policy for the European Community have insisted on treating internal-market policies and external-trade policies as integral parts of a unified strategy aimed at helping European advanced-technology sectors to become competitive with their American and Japanese rivals. Pearce, Joan and Sutton, John with Batchelor, Roy, Protection and Industrial Policy in Europe (London: Routledge & Kegan Paul for the Royal Institute of International Affairs, 1986), pp. 4–9 and chaps. 4–6 and 11.Google Scholar

23. Brander, , “Shaping Comparative Advantage,” pp. 27–28 and 39–41Google Scholar; Krugman, Paul R., “Strategic Sectors and International Competition,” in Stern, R. M., ed., U.S. Trade Policies in a Changing World Economy (Cambridge, Mass.: MIT Press, 1987), p. 207Google Scholar; and Krugman, Paul R., “Is Free Trade Passé?” Economic Perspectives 1 (Fall 1987), pp. 138–43.Google Scholar

24. Heckscher, Eli F., Mercantilism, vol. 2, translated by Shapiro, M., revised edition edited by Soderlund, E. F. (London: Allen & Unwin, 1955), pp. 13–14Google Scholar. See also Robbins, Lionel, The Theory of Economic Policy in English Classical Political Economy (London: Macmillan, 1952), pp. 9–11.Google Scholar

25. Corden's comprehensive review of the post–World War II literature on the subject clearly bears out the statement in the text: Corden, W. M., “The Normative Theory of International Trade,” in Jones, International Trade, pp. 63–130Google Scholar. See also Corden, W. M., Trade Policy and Economic Welfare (Oxford: Clarendon Press, 1974), especially pp. 2–5.Google Scholar

26. Brander and Spencer, “Export Subsidies.”

27. Stackelberg, Heinrich von, Grundlagen der theoretischen Volkswirtschaftslehre, 2d ed. (Tübingen: J. C. B. Mohr, 1951), pp. 206–18Google Scholar; and Stackelberg, , The Theory of the Market Economy, trans. Peacock, Alan T. (London: W. Hodge, 1952), pp. 190–204Google Scholar. I am referring to Stackelberg's textbook, in the German and English versions, because the textbook is most accessible. Stackelberg first published his duopoly solution in various places in 1932– 34, including Marktform und Gleichgewicht (Vienna: J. Springer, 1934), pp. 16–24Google Scholar.

28. Potential effects of intervention on the welfare of consumers in the two producing countries are integrated into the model at later stages. Brander, and Spencer, , “Export Subsidies,” pp. 90–91 and 94–95Google Scholar.

29. Stackelberg, , Grundlagen, pp. 210–11Google Scholar; and Theory of the Market Economy, pp. 194–95Google Scholar. While Alan Peacock's translation used the literal equivalent of “Unabhängigkeitsangebot” and“Abhängigkeitsangebot,” the now common terms “leader” and “follower” were adopted very early to describe Stackelberg's duopoly in English. Leontief, Wassily, “Stackelberg on Monopolistic Competition,” Journal of Political Economy 44 (08 1936), pp. 555–56.CrossRefGoogle Scholar

30. Brander, and Spencer, , “Export Subsidies,” p. 85.Google Scholar

31. Ibid., p. 89. See also Brander, James A., “Rationales for Strategic Trade and Industrial Policy,” in Krugman, Strategic Trade Policy, pp. 28–29.Google Scholar

32. Brander, and Spencer, , “Export Subsidies,” p. 84Google Scholar. Jacquemin suggests that government intervention has credibility “based on its reputation and/or resources or because of the expected inertia of policies, once adopted.” Jacquemin, , The New Industrial Organization, p. 172Google Scholar.

33. The passage in the text refers to a well-known graph that has been used since Stackelberg to illustrate his oligopoly solution and related ones. For details, consult any intermediate microeconomics text or an industrial organization text, such as Clarke, Roger, Industrial Economics (Oxford: Basil Blackwell, 1985), pp. 45–47.Google Scholar

34. Dixit, Avinash K., “The Role of Investment in Entry Deterrence,” Economic Journal 90 (03 1980), pp. 95–106CrossRefGoogle Scholar; and “How Should the United States Respond to Other Countries'Trade Policies?” in Stern, , U.S. Trade Policies in a Changing World Economy, pp. 245–82.Google Scholar

35. Grossman, and Richardson, , Strategic Trade Policy: Survey of Issues, p. 11.Google Scholar

36. Brander, and Spencer, , “Export Subsidies,” p. 94.Google Scholar

37. Ibid., p. 95.

38. Ibid., p. 96.

39. Stackelberg, , Theory of the Market Economy, pp. 194–95.Google Scholar

40. Brander, , “Rationales for Strategic Trade,” p. 30.Google Scholar

41. Krugman, “Import Protection as Export Promotion.”

42. Hamilton, Alexander, “Report on the Subject of Manufactures” (1791), in Syrett, H. C., ed., The Papers of Alexander Hamilton, vol. 10 (New York and London: Columbia University Press, 1966), pp. 268–69Google Scholar. The suggestion that other states had to use temporary protection for their manufacturing industries to overcome British retardation strategies was spelled out in greater detail by List, Friedrich, The National System of Political Economy, trans. Lloyd, S. S. (London: Longmans, Green, 1885)Google Scholar. See especially pp. 86–87 (the case of Prussia), 94 –103 (the United States), and 388–402 (the German Zollverein).

43. See, for example, Caves, Richard E. and Jones, Ronald W., World Trade and Payments (Boston: Little, Brown, 1973), pp. 260–61 and 556–57Google Scholar; Chacholiades, Miltiades, International Trade Theory and Policy (New York: McGraw-Hill, 1978), pp. 525–30Google Scholar; and Ethier, Wilfred J., Modern International Economics (New York: W. W. Norton, 1983), pp. 200–202Google Scholar. An exception is Richardson, who in his 1980 textbook offered an “old-fashioned” strategic interpretation of the infant-industry argument. Richardson, J. David, Understanding International Economics: Theory and Practice (Boston and Toronto: Little, Brown, 1980), pp. 291–94.Google Scholar

44. Corden, , “Normative Theory of International Trade,” pp. 91–92Google Scholar. For a more extensive review of the literature on infant-industry arguments and “pseudo-infant-industry arguments,” see Corden, , Trade Policy and Economic Welfare, pp. 248–79.Google Scholar

45. Corden, , “Normative Theory of International Trade,” p. 92.Google Scholar

46. For a typical example, see Chacholiades, , International Trade Theory and Policy, pp. 528–30.Google Scholar

47. Krugman, “Import Protection as Export Promotion.”

48. Ibid., p. 182.

49. Ibid., p. 181.

50. For simplicity, Krugman assumes that home market protection takes the form of total exclusion of the foreign rival, thereby allowing the domestic producer to move from a Cournot duopoly equilibrium to a monopoly position. A nonprohibitive tariff or quota would have the same result, in principle, because the duopolists would move to a new Cournot equilibrium entailing a lower rate of sales for the foreign firm and a higher rate for the domestic firm in the protected market.

51. Krugman, , “Import Protection as Export Promotion,” p. 185.Google Scholar

52. Ibid., p. 186. See also footnote 33 above.

53. Making the appropriate assumptions, one can show that home market protection might force the foreign rival to go out of business or not to enter the industry in the first place. Thus, home market protection would establish an international monopoly position for the domestic firm. See Jacquemin, , New Industrial Organization, pp. 172–74.Google Scholar

54. Krugman, , “Strategic Sectors and International Competition,” p. 221.Google Scholar

55. Ibid., p. 222.

56. Helpman, and Krugman, , Market Structure and Foreign Trade, pp. 45–66.Google Scholar

57. “First-mover advantages” are defined by Williamson, O. E., Markets and Hierarchies (New York: Free Press, 1975), p. 34Google Scholar. “The basic phenomenon is this: Winners of initial contracts acquire, in learning-by-doing fashion, non-trivial information advantages over nonwinners.” Other first-mover advantages include occupying the best locations, hiring the most suitable internationally mobile talent, securing the first patents, setting industry standards, and so forth. Trade-related aspects of first-mover advantages are reviewed by Harris, , Trade, Industrial Policy and International Competition, pp. 86–92Google Scholar. I am not aware of formal models of strategic trade policy that have incorporated this concept, except for Krishna, Kala, “High Tech Trade Policy,” Discussion Paper no. 1300 (Cambridge, Mass.: Harvard Institute of Economic Research, 1987)CrossRefGoogle Scholar, who recently developed a trade model demonstrating the advantage for first movers of determining industry standards. See also Rao, R. C. and Rutenberg, David P., “Preempting an Alert Rival: Strategic Timing of the First Plant by Analysis of Sophisticated Rivalry,” Bell Journal of Economics 10 (Autumn 1979), pp. 412–28.CrossRefGoogle Scholar

58. Brander, , “Shaping Comparative Advantage,” p. 12Google Scholar. See also Krugman, Paul R., “The Narrow Moving Band, the Dutch Disease, and the Competitive Consequences of Mrs. Thatcher,” Journal of Development Economics 27 (10 1987), pp. 41–55.CrossRefGoogle Scholar

59. Caves, Richard E., “International Trade and Industrial Organization: Problems, Solved and Unsolved,” European Economic Review 28 (08 1985), pp. 377–95.CrossRefGoogle Scholar

60. Krugman, , “Strategic Sectors and International Competition,” p. 208.Google Scholar

61. Eaton, Jonathan and Grossman, Gene M., “Optimal Trade and Industrial Policy Under Oligopoly,” Quarterly Journal of Economics 101 (05 1986), pp. 383–406.CrossRefGoogle Scholar

62. Brander and Spencer, “Export Subsidies.”

63. Eaton, and Grossman, , “Optimal Trade and Industrial Policy Under Oligopoly,” pp. 391–93Google Scholar. J. Bertrand, in an 1883 critique of Cournot's duopoly model, demonstrated that the equilibrium outcome was altered drastically if one assumed that each duopolist conjectured that its rival's price (rather than output) would not change in response to its own actions. See Clarke, , Industrial Economics, p. 44.Google Scholar

64. Stackelberg, , Theory of the Market Economy, p. 194.Google Scholar

65. Grossman, and Richardson, , Strategic Trade Policy: Survey of Issues, p. 14.Google Scholar

66. Eaton, and Grossman, , “Optimal Trade and Industrial Policy Under Oligopoly,” p. 397.Google Scholar

67. Horstmann, Ignatius and Markusen, James R., “Up the Average Cost Curve: Inefficient Entry and the New Protectionism,” Journal of International Economics 20 (05 1986), pp. 225–47.CrossRefGoogle Scholar

68. Eaton, and Grossman, , “Optimal Trade and Industrial Policy Under Oligopoly,” pp. 399–403.Google Scholar

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70. Spencer, Barbara J., “What Should Trade Policy Target?” in Krugman, Strategic Trade Policy, p. 69.Google Scholar

71. Ibid., pp. 71 and 73, respectively.

72. Ibid., p. 71.

73. Grossman, Gene M., “Strategic Export Promotion: A Critique,” in Krugman, Strategic Trade Policy, pp. 57–58Google Scholar; and Dixit, , “Trade Policy: Agenda for Research,” pp. 292–93.Google Scholar

74. Grossman, , “Strategic Export Promotion: A Critique,” pp. 57–58.Google Scholar

75. Spencer, , “What Should Trade Policy Target?” pp. 72–73.Google Scholar

76. Harris, , Trade, Industrial Policy and International Competition, pp. 111–44Google Scholar; McFetridge, Donald G., “The Economics of Industrial Policy,” in McFetridge, D. G., ed., Canadian Industrial Policy in Action (Toronto: University of Toronto Press, 1985), pp. 17–31Google Scholar; and Streit, Manfred E., “Industrial Policies for Technological Change: The Case of West Germany,” in Saunders, C. T., ed., Industrial Policies and Structural Change (London: Macmillan, 1987), pp. 129–42.CrossRefGoogle Scholar

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78. Ibid., p. 238.

79. Ibid., p. 241.

80. Spencer, , “What Should Trade Policy Target?” p. 84.Google Scholar

81. Krugman, Paul R., “The U.S. Response to Foreign Industrial Targeting,” Brookings Papers on Economic Activity 15, no. 1, 1984, p. 83Google Scholar; Dixit, Avinash K. and Kyle, Albert S., “The Use of Protection and Subsidies for Entry Promotion and Deterrence,” American Economic Review 75 (03 1985), p. 139Google Scholar; Harris, , Trade, Industrial Policy and International Competition, p. 30Google Scholar; Brander, , “Rationales for Strategic Trade,” p. 31Google Scholar; Branson, William H. and Klevorick, Alvin K., “Strategic Behavior and Trade Policy,” in Krugman, Strategic Trade Policy, pp. 244–46Google Scholar; Pearce, and Sutton, , Protection and Industrial Policy in Europe, pp. 149–51Google Scholar; and in, Jac-quem, New Industrial Organization, p. 176.Google Scholar

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⁸⁴ .See the harsh critique of West German involvement in the Airbus program contained in the latest annual report of the German government's council of economic advisors: Sachver-ständigenrat, , Vorrang für die Wachstumspolitik (Stuttgart and Mainz: Kohlhammer, 1987)Google Scholar. Governments are surely capable of selecting spectacular losers. There is a literature on examples of unsuccessful targeting in spite of strategic effect, such as the Concorde supersonic jet and fast breeder reactors: Pearce and Sutton, Protection and Industrial Policy in Europe; Kitschelt, Herbert, “Four Theories of Public Policy Making and Fast Breeder Reactor Development,” International Organization 40 (Winter 1986), pp. 65–104CrossRefGoogle Scholar; and Klodt, Henning, Wettlauf um die Zukunft: Technologiepolitik im internationalen Vergleich (Tubingen: J. C. B. Mohr, 1987).Google Scholar

85. Krugman, , “U.S. Response to Foreign Industrial Targeting,” p. 103.Google Scholar

86. Branson, and Klevorick, , “Strategic Behavior and Trade Policy,” p. 245Google Scholar; and Dixit, and Kyle, , “Use of Protection and Subsidies,” p. 151.Google Scholar

87. Globe and Mail, Toronto, 29 January 1987.

88. Branson and Klevorick, “Strategic Behavior and Trade Policy.”

89. Ibid., p. 252.

90. Cline, William R., “U.S. Trade and Industrial Policy: The Experience of Textiles, Steel, and Automobiles,” in Krugman, Strategic Trade Policy, pp. 211–39Google Scholar; Whalley, John, “Brander's ‘Shaping Comparative Advantage’: Remarks,” in Lipsey and Dobson, Shaping Comparative Advantage, pp. 83–89Google Scholar; Lipsey, Richard G., “Report on the Workshop,” in Lipsey and Dobson, Shaping Comparative Advantage, pp. 109–53Google Scholar; and Deardorff, Alan V. and Stern, Robert M., “Current Issues in Trade Policy: An Overview,” in Stern, U.S. Trade Policies in a Changing World Economy, pp. 15–68.Google Scholar

91. Borrus, , Tyson, , and Zysman, , “Creating Advantage,” p. 92Google Scholar; and Lake, David A., “The State and American Trade Strategy in the Pre-Hegemonic Era,” International Organization 42 (Winter 1988), p. 33CrossRefGoogle Scholar. Lake approvingly refers to the recent economic literature on strategic trade policy for his historical analysis of U.S. trade policy during the period 1887 –1939, but he does not make use of economic models.

92. Corden, , “Normative Theory of International Trade,” p. 86.Google Scholar

93. Ibid., p. 88. For an exposition in detail, see Stegemann, Klaus, “The Efficiency Rationale of Anti-Dumping Policy and Other Measures of Contingency Protection,” in Quinn, J. and Slayton, P., eds., Non-Tariff Barriers After the Tokyo Round (Montreal: Institute for Research on Public Policy, 1982), pp. 21–69.Google Scholar

94. Economists in response have developed a whole new subdiscipline— public choice the ory—attempting to explain why what in their view is sound advice based on economic theory often is ignored or is followed by perverse policy implementation. The following examples are pertinent in the context of trade policy: Findlay, Ronald and Wellisz, Stanislaw, “Endogenous Tariffs, the Political Economy of Trade Restrictions, and Welfare,” in Bhagwati, J. N., ed., Import Competition and Response (Chicago: University of Chicago Press, 1982), pp. 223–34;Google ScholarMayer, Wolfgang, “Endogeneous Tariff Formation,” American Economic Review 74 (12 1984), pp. 970–85Google Scholar; and Baldwin, Robert E., The Political Economy of U.S. Import Policy (Cambridge, Mass.: MIT Press, 1985)Google Scholar. See also the survey by Frey, Bruno S., “The Public Choice View of International Political Economy,” International Organization 38 (Winter 1984), pp. 199–223.CrossRefGoogle Scholar

95. This problem has been made more severe by easy access to the anti-dumping and countervailing duty mechanisms of the United States, the European Community, Canada, and Australia. These mechanisms are practically automatic in the sense that, almost without exception, producers are entitled to protection against imports that are subsidized or sold below full cost if these imports are found to cause private material injury. The process does not include any consideration of the costs of intervention or a consideration of policy alternatives. Dale, Richard, Anti-Dumping Law in a Liberal Trade Order (New York: St. Martin's Press, 1980)CrossRefGoogle Scholar; Stegemann, Klaus, “Anti-Dumping Policy and the Consumer,” Journal of World Trade Law 19 (09–10 1985), pp. 466–84Google Scholar; Destler, American Trade Politics: System Under Stress, chap. 6; and Deardorff and Stern, “Current Issues in Trade Policy,” pp. 24–28.

96. Krugman, “U.S. Response to Foreign Industrial Targeting”; and Dixit, “How Should the United States Respond?”

97. Brander, , “Shaping Comparative Advantage,” pp. 47–51.Google Scholar See also Lipsey, , “Report on the Workshop,” pp. 138–48Google Scholar; and the references cited in footnote 84 above.

⁹⁸ .Johnson, “Optimum Tariffs and Retaliation”; Mayer, Wolfgang, “Theoretical Considerations on Negotiated Tariff Adjustments,” Oxford Economic Papers 33 (03 1981), pp. 135–53CrossRefGoogle Scholar; Thursby, Marie and Jensen, Richard, “A Conjectural Variation Approach to Strategic Tariff Equilibria,” Journal of International Economics 14 (02 1983), pp. 145–61CrossRefGoogle Scholar; and Whalley, John, Trade Liberalization Among Major World Trading Areas (Cambridge, Mass.: MIT Press, 1985).Google Scholar

99. Richardson, “New Political Economy of Trade Policy”; and Dixit, “How Should the United States Respond?”

100. A combination of economics and political science has been used successfully in research on U.S. trade policy, such as in Baldwin, Political Economy of U.S. Import Policy; and Destler, American Trade Politics: System Under Stress. Computer simulation work of the “prisoner's dilemma” by Robert Axelrod, a political scientist, has greatly stimulated the discussion of international economic policies by economists. Axelrod, Robert, The Evolution of Cooperation (New York: Basic Books, 1984).Google Scholar This work is favorably reviewed by several of the authors cited above, including Brander, , “Rationales for Strategic Trade and Industrial Policy,” pp. 39–43Google Scholar; Richardson, , “New Political Economy of Trade Policy,” pp. 270–74Google Scholar; Brander, , “Shaping Comparative Advantage,” pp. 23–27Google Scholar; Deardorff, and Stern, , “Current Issues in Trade Policy,” pp. 55–56Google Scholar; and Dixit, , “How Should the United States Respond?” pp. 278–79.Google Scholar For an early adaptation of Axelrod's work to trade policy, see Judith L. Goldstein, and Krasner, Stephen D., “Unfair Trade Practices: The Case for a Differentiated Response,” American Economic Review 74 (05 1984), pp. 282–87.Google Scholar

101. An innovative approach to this problem that combines the theory of “hegemonic stability” and the concept of “transactions cost economics” has been proposed by Yarbrough, Beth V. and Yarbrough, Robert M., “Cooperation in the Liberalization of International Trade: After Hegemony, What?” International Organization 41 (Winter 1987), pp. 1–26.CrossRefGoogle Scholar See also Strange, Susan, “The Persistent Myth of Lost Hegemony,” International Organization 41 (Autumn 1987), pp. 551–74.CrossRefGoogle ScholarConybeare, John A. C., Trade Wars: The Theory and Practice of International Commercial Rivalry (New York: Columbia University Press, 1987)Google Scholar very much focuses on the relative size of players in his explanation of trade wars. Conybeare's study is highly recommended because it adds methodological and historical perspectives to the debate on economic models of strategic trade policy.