Emerging Trends in The Social and Behavioral Sciences

Domestic Politics of Trade Policy

Item

Title

Domestic Politics of Trade Policy

Author

Aklin, Michaël

Arias, Eric

Deniz, Emine

Peter Rosendorff, B.

Research Area

Social Institutions

Topic

Government Systems

Abstract

Domestic politics shape international trade policy, but exactly how and why remains an open question. We explore the cutting‐edge literature that focuses on how agents' interests are formed, whose interests are organized, and how those interests interact with each other via domestic political institutions to generate both trade policy and international cooperation over trade more broadly. In turn, trade policies operate as a feedback loop. International cooperation generates information via international organizations, treaties, and more informal regimes, which affects the domestic politics conflict in substantive ways. We explore each of these topics and suggest future research paths.

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Identifier

etrds0089

extracted text

Domestic Politics of Trade Policy
MICHAËL AKLIN, ERIC ARIAS, EMINE DENIZ, and B. PETER ROSENDORFF

Abstract
Domestic politics shape international trade policy, but exactly how and why remains
an open question. We explore the cutting-edge literature that focuses on how agents’
interests are formed, whose interests are organized, and how those interests interact
with each other via domestic political institutions to generate both trade policy and
international cooperation over trade more broadly. In turn, trade policies operate as
a feedback loop. International cooperation generates information via international
organizations, treaties, and more informal regimes, which affects the domestic politics conflict in substantive ways. We explore each of these topics and suggest future
research paths.

INTRODUCTION
That domestic politics matters for trade policy is now a well-established trope
in both economics and political science. International trade and international
relations more generally are not determined by a sole national executive,
acting autonomously and isolated from the pressures of domestic political
interests when choosing tariff levels, health and safety rules and regulations,
or other elements of trade policy. Instead, trade policy, like any other domain
of public policy, is determined by the interplay of domestic economic interests, domestic political institutions, and the information that is available to
all involved players.
The research agenda in the recent period has been to identify not merely
that domestic politics matters, but instead to determine why it matters. This
means, essentially, understanding who the important players in the trade
policy process and what their interests or preferences are. These preferences
vary across groups, be they industries, factor owners (i.e., the “owners” of
inputs such as labor, capital, or land), an agent’s role as producer or consumer, or as an upstream or downstream firm. The groups themselves may
or may not be organized politically, and may or may not have political clout.
The ability of any group to influence a policy outcome or the trade policy
agenda will depend on the structure and nature of the domestic political
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

process–the set of mechanisms that mediate political conflict, and transmit
preferences into policy, which we call institutions. Finally, the international
arrangements that are made to govern these trade policies in themselves
generate information that impacts both the political strength of the domestic
interested parties and the trade policies that are chosen. There is, in a sense,
a “feedback-loop” leading back from trade policies, agreements, and international organizations that impacts the political influence of the domestic
interests.
To understand how domestic politics matters for trade policy, we must
recognize the crucial interaction of interests and institutions on trade policy, and of information generated by implemented trade policy on domestic
interests (mediated by the domestic institutions). In what follows we explore
the cutting-edge literature that focuses on how interests are formed, whose
interests are organized, and how those interests interact with each other via
domestic political institutions to generate both trade policy and international
cooperation over trade more broadly. International cooperation via international organizations, treaties, and more informal regimes, in turn generate
information that affects the domestic politics conflict in substantive ways.
INTERESTS: INDIVIDUALS, GROUPS AND THEIR PREFERENCES
International trade theory offers a natural starting point for the political economy of protection. The canonical Heckscher–Ohlin model offers a simple
account of two countries that have two factors of production (labor and capital) and trade two goods. When trade barriers such as tariffs are removed,
each country will specialize in the production of the good that requires (relatively) more input from the factor that is (relatively) abundant in that country.
Thus, industrialized countries are predicted to shift production toward goods
that require a lot of capital, while developing countries will focus on goods
that require relatively more labor. This class-based model of trade generates,
via the Stolper–Samuelson theorem, the very neat claim that barriers to trade
will benefit the owners of the relatively scarce factor, and harm the owners of the relatively abundant factor. Barriers to trade in the United States,
for example, benefit the unskilled labor and harm skilled labor—since the
United States has relatively less unskilled labor than most of its trading partners (Leamer, 1984).
Early approaches took these groups and their induced preferences over
trade policy as given. It seemed a reasonable assumption that unskilled labor
in the United States would be opposed to free trade agreements, while owners of capital would be in favor. These preferences over trade policy were “induced” because they emerged from the underlying preferences over income

Domestic Politics of Trade Policy

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and consumption (i.e., more income is better; Persson & Tabellini, 2000). Attitudes to trade therefore are closely correlated with factor-ownership or class.
The Ricardo-Viner (or “specific factors”) model of international trade
induces preferences over trade policy along industry lines, and thus is at
odds with the predictions from the Heckscher–Ohlin/Stolper–Samuelson
model. Ricardo-Viner stipulates that, in the aftermath of trade liberalization,
one factor of production cannot be reassigned to a new industry. For
instance, people who work in the textile industry cannot easily migrate to
the computer sector. Thus, that factor’s fortunes are tightly entwined to
the sector to which it is specific. Industries that expand owing to international trade see their revenues increase along with their increased exports;
industries that suffer owing to import-competition are expected to oppose
liberalization. The Ricardo-Viner view thus predicts that induced preferences are determined by an individual’s location within an industry rather
than the class to which she belongs.
Both models make very clear that trade (and conversely, protection)
redistribute income from one group to another. Recent scholarship has
made significant progress in identifying the politically relevant groups and
their interests. A key aspect of this endeavor is to understand how those
interests are aggregated and how they influence policymaking. We discuss
this work below by looking at individual level preferences: first, industry
and firm level preferences next, and finally, how they go about making
policy demands.
INDIVIDUALS AND PUBLIC OPINION
Studies of trade preferences at the individual level have grown rapidly over
the past two decades thanks to improvements in survey data collection. Overall, this research has contributed in two ways: first, by testing the predictions
of international trade theory, and second by finding complementary accounts
of the determinants of trade policy attitudes, giving rise to a debate on the
relative importance of material versus non-material factors.
Measuring skills by education and occupation wages, the predictions of the
Heckscher–Ohlin model are supported by United States (Scheve & Slaughter, 2001) and cross-country survey data (Mayda & Rodrik, 2005). In contrast, using industry of employment, evidence supporting the Ricardo-Viner
model is mixed. Mayda and Rodrik (2005) find evidence for this model, while
Scheve and Slaughter (2001) do not.
Scholars also sought to uncover noneconomic determinants of trade policy
attitudes. Some authors argue that local attachments and nationalistic sentiments are correlated with support for protectionist policies (Mansfield &

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Mutz, 2009). Others argue that the effect of education on individual preferences goes beyond skills acquisition. Education may expose people to economic and cosmopolitan ideas that emphasize the benefits of globalization,
and thus have an indirect effect on trade policy preferences (Hainmueller &
Hiscox, 2006). Finally, education also mediates the effects of issue framing
on trade policy preferences. Using a survey experiment, Hiscox (2006) shows
that the wording of survey questions has systematic biases in responses, but
these biases are weaker among highly educated individuals.
Scholars emphasizing the role of material interests did not take long
to respond. Ardanaz, Murillo, and Pinto (2013) replicate Hiscox’s (2006)
design explicitly considering the impact of trade on individuals’ income.
They use the respondent’s region to determine whether she lives in an
import-competing area (which stands to lose from trade) or not, and examine how it affects respondents’ biases to different questions. They find that
people living in import-competing areas are less likely to be influenced
by the framing of the question. This is because those individuals whose
income is closely affected by trade have more knowledge about the effect
of trade openness in their own income, making them less sensitive to other
informational cues.
FIRMS AND INDUCED TRADE POLICY
Social scientists have studied trade at a second level of analysis, namely from
the perspective of firms and industrial sectors. This aggregation is natural for
various reasons. First, firms are well-organized institutions and thus often
able to formulate policy demands (Grossman & Helpman, 1994). Second,
they have access to vast resources, which is helpful when lobbying politicians. Finally, firms and entire industries may be directly affected by trade
policies.
The last point is particularly salient and informed early models of industry
trade preferences (Milner, 1999). As discussed above, the Ricardo-Viner trade
model predicts that if some factors of production are tied to their industries,
then trade preferences will be defined along industrial lines. Thus, the relevant units are industries, and what individuals want (if they matter at all)
will depend on who their employer is. Of course, how mobile factors such
as labor are may change over time (Hiscox, 2001). Furthermore, industries’
preferences may evolve. As trade barriers go down, firms may buy more
inputs from abroad, changing their priorities (Milner, 1988). Nonetheless, a
body of evidence suggests that domestic trade conflicts have pitted industries
against each other. Hiscox (2001) provides historical evidence from six Western countries and shows that periods of low factor mobility coincide with
strong industry-based lobbying. Similarly, using survey data from Norway,

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Alt, Carlsen, Heum, and Johansen (1999) show that lobbying increases as a
firm’s asset becomes more specific.
Nevertheless, these models had little to say about the rise of intra-industry
trade (Helpman, 1999). Ricardo-Viner and Heckscher–Ohlin expect countries
to specialize, trade being the mechanisms that enables them to do so. In
reality, however, large trade flows of very similar goods occur between
almost identical countries. New trade theory (and new new trade theory, its
recent avatar) filled this gap (Melitz, 2003). These models rejected the view
that firms can be thought of as homogeneous units within industries. Goods
are now differentiated, allowing countries to simultaneously import and
export cars, for instance. The implication is that the relevant unit of analysis
is not an industry, but the firms that constitute it.
Thus, attention has shifted from industries to firms. The decision to lobby,
for instance, is now modeled at the firm level (Gilligan, 1997). Even when
they operate in the same sector, firms vary along numerous dimensions.
Melitz (2003) shows that variation in productivity within an industry can
affect a firm’s stance with respect to exports, and hence can induce preferences over trade policy. In a similar manner, some firms may have access to
better technology (Yeaple, 2005). Overall, highly productive firms are more
likely to be exporters; least productive firms in an industry are likely to be
import-competing. When barriers to trade fall, it is the least competitive
firms that exit the industry, and it is these firms that are more likely to be
politically active in search of protection.
LOBBIES
While identifying individual and firm preferences is the first step toward a
complete model of trade policy, the next one is to specify how they influence
policymaking. In particular, how do these players overcome the so-called
coordination problem and make policy demands (Olson, 1965)? What we
now regard as a process to be explained and not just taken for granted–lobby
formation –was mainly ignored altogether until the seminal work by Grossman and Helpman (1994).
The main idea behind Grossman and Helpman’s (1994) theory of endogenous protection is best described by the paper’s title: “Protection for Sale.” It
argues that special interest groups can use campaign contributions to incentivize politicians to adopt favorable trade policies. The paper describes a
contribution schedule as the announcement by a lobby of the amount of campaign contributions it is willing to make in exchange for a given policy. The
equilibrium is then defined as “a set of contribution schedules such that each
lobby’s schedule maximizes the aggregate utility of the lobby’s members,
taking as given the schedules of other lobby groups.” All else being equal,

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

it is industries’ relative importing or exporting nature that will affect their
decision to deviate from free trade.
While Grossman and Helpman (1994) take the existence of organized
groups as given, Mitra (1999) seeks to explain the lobby formation process
itself. He shows that the equilibrium trade subsidy is not always positively
related to the government’s affinity for campaign contributions. This is
because high affinity for contributions leads to the formation of a large
number of opposing lobbies that cancel each other out. He also finds that
industries with large capital stocks, facing inelastic demand functions, with
few capital owners, and that are geographically concentrated are more likely
to get organized. Bombardini (2008) builds on this approach to argue that
the “Protection for Sale” paradigm cannot account for the effect of relative
firm size because it treats lobbies as unitary actors. Instead, she models
individual firms choosing the amount of resources allocated to campaign
contributions. She shows that (i) it is efficient for the largest firms in a sector
to form the lobby, and (ii) the degree of protection extended to a given
sector increases with the number of firms above a given size in that sector.
Empirically, this model explains a larger share of the variation in protection
across sectors than the “Protection for Sale” mechanism.
A second source of heterogeneity is the relative reliance of firms on
capital or labor. In Mitra (2000), heterogeneity arising from capital-rich and
labor-rich industries results in an equilibrium under which capitalists might
prefer protection to subsidies. Lobbying for protection instead of subsidies
can mitigate the coordination problem for capital-rich industries. On the
other hand, empirical evidence suggests that international competition
increases the likelihood of lobbying for subsidies for industries with high
specialization, that is, less mobility (Alt et al., 1999).
INSTITUTIONS
Early work pointed to the important determinative effects of domestic political institutions on trade policy. To quote Alt and Gilligan (1994, p. 166) “anyone theorizing about the state confronts issues arising from both institutions
and economic structure in figuring out distributional effects.” In this section
we elaborate on these issues, first by looking at the differential effects of
regime type, and then by discussing the consequences of institutional variation between democracies.
REGIME TYPE: DEMOCRACIES AND AUTOCRACIES
Democracies are shown to trade more freely (Rosendorff, 2006), and are generally more cooperative when it comes to international commercial policy.

Domestic Politics of Trade Policy

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Explanations for this behavior emerge from models highlighting separation
of powers (Mansfield, Milner, & Rosendorff, 2000; Martin, 2000), electoral
accountability (Mansfield, Milner, & Rosendorff, 2002; Milner, Rosendorff, &
Mansfield, 2004), the presence of veto players (Mansfield, Milner, & Pevehouse, 2007; Mansfield & Milner, 2012), and an increased willingness to use
trade agreements to improve transparency (Hollyer & Rosendorff, 2012). Milner and Kubota (2005) argue that as democracy has emerged in labor-rich
countries, Stolper-Samuelson effects would lead to an increased demand for
freer trade. Electorally accountable leaders in labor-rich countries lower trade
barriers as democracy expands. In a more subtle vein, Kono (2006) argues that
democracy induces politicians to reduce transparent trade barriers but also
to replace them with less transparent ones.
Other characteristics of democratic polities have also emerged as important
determinants of trade policy. For instance, electoral accountability increases
the need for governments to be able to provide temporary relief for influential sectors and industries without violating international obligations.
This to preserve a cooperative trading stance in international relations.
Rosendorff and Milner (2001) show that international trade agreements are
designed to permit accountable governments (more likely to be democracies)
temporary relief from their obligations in the form of the safeguard and the
antidumping codes such as the WTO’s Anti-Dumping Agreement (see also
Rosendorff, 1996). The WTO’s dispute settlement procedures play a similar
role (Rosendorff, 2005).
INTRADEMOCRATIC VARIATION
Electoral Rule Institutional variations between democracies are relevant as
well. Majoritarian electoral systems impart a protectionist bias to trade
policy (Grossman & Helpman, 2005). This echoes Rogowski (1987) who
suggested that large district proportional representation parliamentary
systems are best for protecting free(r) trade. In contrast, Ehrlich (2007)
suggests that once the number of parties in government and the number
of electoral districts are controlled for, proportional representation has no
impact on trade policy. Evans (2009) tests Grossman and Helpman’s (2005)
claim and finds that countries with majoritarian systems indeed appear to
have higher average tariffs than do countries with proportional systems.
This result holds after controlling for country-specific characteristics, such
as a country’s legal origins, colonial history, and geographic location.
Rickard (2012) expands the investigation to find the protectionist bias in
majoritarian systems extends beyond tariffs to include state production
subsidies too.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Parties and Party Discipline Party ideology, and the degree to which party
members are required to vote the party line affect a state’s protectionist
stance. Dutt and Mitra (2005) establish that, vis-à-vis rightwing governments,
left-wing leaders adopt more protectionist trade policies in capital-rich countries, but adopt more pro-trade policies in labor-rich countries. Similarly,
Milner and Judkins (2004) find that right-wing parties take more free trade
stances than do left ones in developed countries.
District marginality interacts with party discipline in crucial ways
(McGillivray, 1997; McGillivray & Smith, 1997). In majoritarian systems with
high levels of party discipline, trade policies will favor voters in marginal
districts; with low party discipline, trade policies will favor large, electorally
dispersed industries. Hence, industries concentrated in marginal districts
are expected to be the least favorably protected while large industries
geographically dispersed over many electoral districts receive the most
favorable protection.
Divided Government and Veto Players. The structure of negotiation over trade
policy between the executive and legislative branches has several implications as well. If presidents can negotiate agreements that do not require
congressional approval they may still decide to engage in that domestic
negotiation as a signal of intent to comply with it (Martin, 2005). However,
the terms of that negotiation will partially reflect protectionist preferences of
the legislature branch (Dai, 2006). In particular, divided government requires
the executive to assemble a congressional majority, thus constraining her to
provide higher protection (Lohmann & O’Halloran, 1994). Moreover, divided
government not only impacts the depth of international agreements, it also
increases the probability of ratification failures (Milner & Rosendorff, 1997).
Others branches of government also influence trade policy. The key aspect
here is the presence of veto players, that is, actors who might block the ratification of a trade treaty, and thus impose new constrains during the negotiation. Evidence shows that an increase in the number of veto players has
two main consequences: first, it increases the time that takes to ratify international trade agreements (Mansfield & Milner, 2012), and second, reduces
the likelihood of signing new ones (Mansfield et al., 2007).
INFORMATION: THE FEEDBACK LOOP
So far, we explained trade policies as a function of domestic politics.
However, trade, operating as a feedback loop, also shapes domestic politics.
Specifically, trade and trade-related institutions may provide information to
domestic audiences and enable policymakers to send them signals.

Domestic Politics of Trade Policy

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Economies fluctuate along boom and bust cycles. Generally, domestic
audiences are imperfectly informed about the responsibility of their leaders
for these busts. Poor performances may be due to chance (or, more accurately, bad luck) but they could also be due to their leader’s poor policies.
For instance, high trade barriers create inefficiencies that hurt economic
productivity. In the absence of third party monitoring, audiences may be
unable to attribute responsibility. International organizations and treaties
provide a solution to this information problem (Mansfield et al., 2002).
International institutions generally monitor their members’ behavior and
include a system to address complaints about noncompliance. This is the
case, for instance, for trade institutions such as the WTO. Domestic leaders
who worry about being accused of poor economic management may thus
have an incentive to join these institutions. Since bad economic governance
(such as increasing undue subsidies to favored industries) would likely trigger a complaint, Mansfield et al. (2002) argue that international institutions
provide information to domestic audiences. The absence of complaint is
interpreted as sound policies, while accusations of cheating are interpreted
as poor policies.
A related stream of literature focuses on policymakers’ ability to send signals to domestic audiences. Political leaders may be unable to credibly commit to an optimal policy. For instance, governments may be unable to enforce
a reduction in trade barriers if domestic industries know that their support is
important to them. In other words, governments suffer from a time inconsistency problem (Staiger & Tabellini, 1987). Joining international institutions
can thus be a mechanism for governments to credibly signal to their domestic audience their commitment to good economic and trade policies (Mansfield & Pevehouse, 2006). Maggi and Rodriguez-Clare (1998) argue that this is
particularly likely to occur when governments are relatively weak compared
to domestic lobbies. They make the paradoxical prediction that it is countries
that have strong interest groups that are the most likely to end up with freer
trade.
Both the information and the signaling mechanisms depend on international events updating domestic preferences. A recent stream of literature
has thus attempted to tackle whether domestic audiences pay attention to
trade disputes. Drawing on Google search data, Pelc (2012) shows that the
number of searches about the WTO increases in the United States when a
trade dispute occurs. This is consistent with the view that domestic audiences are particularly attentive to mishaps by their government. However,
this ignores that domestic agents are not homogeneous, nor is their interest in trade issues always the same. Chaudoin (2014) argues that audiences
are more likely to pay attention to the implications of trade disputes when
macroeconomic conditions are benign.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

THE NEXT STEPS
Our review suggests that the literature is moving in three related directions.
First, recent research has built on nuanced trade theories that are rooted at the
micro level. New trade theory underscores the importance of disaggregating
industries to understand what drives firms’ preferences. Similarly, drawing
on experimental methods, scholars are seeking a deeper understanding of the
roots of individual views about trade. What remains to be seen is how well
these models apply to countries beside the United States. In particular, future
research on the preferences of firms and individuals located in developing
countries may be fruitful.
The second stream of research has focused on the mediating role that
institutions have on trade policies. As trade policies have potent distributional implications, our understanding of trade politics relies heavily on
studying the rules of collective decision-making. In particular, scholars have
been interested both in differences between democracies and autocracies,
and in variations among democracies. In comparison, trade policies in
authoritarian regimes have remained relatively understudied.
Finally, scholars have sought to understand how international trade
relations affect domestic politics. International institutions and trade disputes release valuable information to citizens. Future research will have to
explicitly model how this information is processed by individuals and how
it affects the policy-making process. Under which circumstances are citizens
sensitive to new information? In addition, does their sensitivity depend on
the institutional context in which they are embedded?
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international cooperation: Theoretical perspectives. New York, NY: Cambridge University Press.
Mitra, D. (1999). Endogenous lobby formation and endogenous protection: A
long-run model of trade policy determination. American Economic Review, 89(5),
1116–1134.
Mitra, D. (2000). On the endogenous choice between protection and promotion. Economics & Politics, 12(1), 33–51.
Olson, M. (1965). The logic of collective action: Public goods and the theory of groups. Cambridge, England: Harvard University Press.
Pelc, K. (2012). Googling the WTO: What search engine data tell us about the political
economy of institutions. International Organization, 67(3), 629.
Persson, T., & Tabellini, G. (2000). Political economics: Explaining economic policy. Cambridge, England: MIT Press.
Rickard, S. J. (2012). A non-tariff protectionist bias in majoritarian politics: Government subsidies and electoral institutions. International Studies Quarterly, 56(4),
777–785.

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Rogowski, R. (1987). Trade and the variety of democratic institutions. International
Organization, 41(2), 203–223.
Rosendorff, B. P. (1996). Voluntary export restraints, antidumping procedure and
domestic politics. American Economic Review, 86(3), 544–561.
Rosendorff, B. P. (2005). Stability and rigidity: Politics and the design of the WTO’s
dispute resolution procedure. The American Political Science Review, 99(3), 389–400.
Rosendorff, B. P. (2006). Do democracies trade more freely?. In R. Pahre (Ed.), Democratic foreign policy making: Problems of divided government and international cooperation. London, England: Palgrave.
Rosendorff, B. P., & Milner, H. V. (2001). The optimal design of international trade
institutions: Uncertainty and escape. International Organization, 55(4), 829–857.
Scheve, K., & Slaughter, M. J. (2001). What determines individual trade policy preferences? Journal of International Economics, 54(1), 267–292.
Staiger, R. W., & Tabellini, G. (1987). Discretionary trade policy and excessive protection. American Economic Review, 77(5), 823–837.
Yeaple, S. R. (2005). A simple model of firm heterogeneity, international trade, and
wages. Journal of International Economics, 65(1), 1–20.

MICHAËL AKLIN SHORT BIOGRAPHY
Michaël Aklin is Assistant Professor of Political Science at the University
of Pittsburgh. His research focuses on international and comparative political economy with applications to finance and environmental issues, and
has been published in journals such as the American Journal of Political Science, International Studies Quarterly, Global Environmental Change, and Ecological Economics. http://www.pitt.edu/∼aklin/
ERIC ARIAS SHORT BIOGRAPHY
Eric Arias is a PhD. candidate in Politics at New York University. His interests
lie in international and comparative political economy with a focus on the
international sources of domestic policy.
EMINE DENIZ SHORT BIOGRAPHY
Emine Deniz is a PhD. candidate in Politics at New York University. Her
research interests lie in political economy and formal modeling.
B. PETER ROSENDORFF SHORT BIOGRAPHY
B. Peter Rosendorff is Professor of Politics at New York University. He
is editor of the interdisciplinary journal, Economics and Politics, and is
an editorial board member of International Organization. He has held
grants from the National Science Foundation, the Japan Foundation,

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

among others. His research interests include the UN Convention against
Torture, the World Trade Organization, political economy of terrorism,
bilateral trade, and investment treaties. His work has been published in
journals such as the American Economic Review, American Political Science
Review, International Organization, and Quarterly Journal of Political Science.
https://files.nyu.edu/bpr1/public/
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Domestic Politics of Trade Policy
MICHAËL AKLIN, ERIC ARIAS, EMINE DENIZ, and B. PETER ROSENDORFF

Abstract
Domestic politics shape international trade policy, but exactly how and why remains
an open question. We explore the cutting-edge literature that focuses on how agents’
interests are formed, whose interests are organized, and how those interests interact
with each other via domestic political institutions to generate both trade policy and
international cooperation over trade more broadly. In turn, trade policies operate as
a feedback loop. International cooperation generates information via international
organizations, treaties, and more informal regimes, which affects the domestic politics conflict in substantive ways. We explore each of these topics and suggest future
research paths.

INTRODUCTION
That domestic politics matters for trade policy is now a well-established trope
in both economics and political science. International trade and international
relations more generally are not determined by a sole national executive,
acting autonomously and isolated from the pressures of domestic political
interests when choosing tariff levels, health and safety rules and regulations,
or other elements of trade policy. Instead, trade policy, like any other domain
of public policy, is determined by the interplay of domestic economic interests, domestic political institutions, and the information that is available to
all involved players.
The research agenda in the recent period has been to identify not merely
that domestic politics matters, but instead to determine why it matters. This
means, essentially, understanding who the important players in the trade
policy process and what their interests or preferences are. These preferences
vary across groups, be they industries, factor owners (i.e., the “owners” of
inputs such as labor, capital, or land), an agent’s role as producer or consumer, or as an upstream or downstream firm. The groups themselves may
or may not be organized politically, and may or may not have political clout.
The ability of any group to influence a policy outcome or the trade policy
agenda will depend on the structure and nature of the domestic political
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

1

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

process–the set of mechanisms that mediate political conflict, and transmit
preferences into policy, which we call institutions. Finally, the international
arrangements that are made to govern these trade policies in themselves
generate information that impacts both the political strength of the domestic
interested parties and the trade policies that are chosen. There is, in a sense,
a “feedback-loop” leading back from trade policies, agreements, and international organizations that impacts the political influence of the domestic
interests.
To understand how domestic politics matters for trade policy, we must
recognize the crucial interaction of interests and institutions on trade policy, and of information generated by implemented trade policy on domestic
interests (mediated by the domestic institutions). In what follows we explore
the cutting-edge literature that focuses on how interests are formed, whose
interests are organized, and how those interests interact with each other via
domestic political institutions to generate both trade policy and international
cooperation over trade more broadly. International cooperation via international organizations, treaties, and more informal regimes, in turn generate
information that affects the domestic politics conflict in substantive ways.
INTERESTS: INDIVIDUALS, GROUPS AND THEIR PREFERENCES
International trade theory offers a natural starting point for the political economy of protection. The canonical Heckscher–Ohlin model offers a simple
account of two countries that have two factors of production (labor and capital) and trade two goods. When trade barriers such as tariffs are removed,
each country will specialize in the production of the good that requires (relatively) more input from the factor that is (relatively) abundant in that country.
Thus, industrialized countries are predicted to shift production toward goods
that require a lot of capital, while developing countries will focus on goods
that require relatively more labor. This class-based model of trade generates,
via the Stolper–Samuelson theorem, the very neat claim that barriers to trade
will benefit the owners of the relatively scarce factor, and harm the owners of the relatively abundant factor. Barriers to trade in the United States,
for example, benefit the unskilled labor and harm skilled labor—since the
United States has relatively less unskilled labor than most of its trading partners (Leamer, 1984).
Early approaches took these groups and their induced preferences over
trade policy as given. It seemed a reasonable assumption that unskilled labor
in the United States would be opposed to free trade agreements, while owners of capital would be in favor. These preferences over trade policy were “induced” because they emerged from the underlying preferences over income

Domestic Politics of Trade Policy

3

and consumption (i.e., more income is better; Persson & Tabellini, 2000). Attitudes to trade therefore are closely correlated with factor-ownership or class.
The Ricardo-Viner (or “specific factors”) model of international trade
induces preferences over trade policy along industry lines, and thus is at
odds with the predictions from the Heckscher–Ohlin/Stolper–Samuelson
model. Ricardo-Viner stipulates that, in the aftermath of trade liberalization,
one factor of production cannot be reassigned to a new industry. For
instance, people who work in the textile industry cannot easily migrate to
the computer sector. Thus, that factor’s fortunes are tightly entwined to
the sector to which it is specific. Industries that expand owing to international trade see their revenues increase along with their increased exports;
industries that suffer owing to import-competition are expected to oppose
liberalization. The Ricardo-Viner view thus predicts that induced preferences are determined by an individual’s location within an industry rather
than the class to which she belongs.
Both models make very clear that trade (and conversely, protection)
redistribute income from one group to another. Recent scholarship has
made significant progress in identifying the politically relevant groups and
their interests. A key aspect of this endeavor is to understand how those
interests are aggregated and how they influence policymaking. We discuss
this work below by looking at individual level preferences: first, industry
and firm level preferences next, and finally, how they go about making
policy demands.
INDIVIDUALS AND PUBLIC OPINION
Studies of trade preferences at the individual level have grown rapidly over
the past two decades thanks to improvements in survey data collection. Overall, this research has contributed in two ways: first, by testing the predictions
of international trade theory, and second by finding complementary accounts
of the determinants of trade policy attitudes, giving rise to a debate on the
relative importance of material versus non-material factors.
Measuring skills by education and occupation wages, the predictions of the
Heckscher–Ohlin model are supported by United States (Scheve & Slaughter, 2001) and cross-country survey data (Mayda & Rodrik, 2005). In contrast, using industry of employment, evidence supporting the Ricardo-Viner
model is mixed. Mayda and Rodrik (2005) find evidence for this model, while
Scheve and Slaughter (2001) do not.
Scholars also sought to uncover noneconomic determinants of trade policy
attitudes. Some authors argue that local attachments and nationalistic sentiments are correlated with support for protectionist policies (Mansfield &

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Mutz, 2009). Others argue that the effect of education on individual preferences goes beyond skills acquisition. Education may expose people to economic and cosmopolitan ideas that emphasize the benefits of globalization,
and thus have an indirect effect on trade policy preferences (Hainmueller &
Hiscox, 2006). Finally, education also mediates the effects of issue framing
on trade policy preferences. Using a survey experiment, Hiscox (2006) shows
that the wording of survey questions has systematic biases in responses, but
these biases are weaker among highly educated individuals.
Scholars emphasizing the role of material interests did not take long
to respond. Ardanaz, Murillo, and Pinto (2013) replicate Hiscox’s (2006)
design explicitly considering the impact of trade on individuals’ income.
They use the respondent’s region to determine whether she lives in an
import-competing area (which stands to lose from trade) or not, and examine how it affects respondents’ biases to different questions. They find that
people living in import-competing areas are less likely to be influenced
by the framing of the question. This is because those individuals whose
income is closely affected by trade have more knowledge about the effect
of trade openness in their own income, making them less sensitive to other
informational cues.
FIRMS AND INDUCED TRADE POLICY
Social scientists have studied trade at a second level of analysis, namely from
the perspective of firms and industrial sectors. This aggregation is natural for
various reasons. First, firms are well-organized institutions and thus often
able to formulate policy demands (Grossman & Helpman, 1994). Second,
they have access to vast resources, which is helpful when lobbying politicians. Finally, firms and entire industries may be directly affected by trade
policies.
The last point is particularly salient and informed early models of industry
trade preferences (Milner, 1999). As discussed above, the Ricardo-Viner trade
model predicts that if some factors of production are tied to their industries,
then trade preferences will be defined along industrial lines. Thus, the relevant units are industries, and what individuals want (if they matter at all)
will depend on who their employer is. Of course, how mobile factors such
as labor are may change over time (Hiscox, 2001). Furthermore, industries’
preferences may evolve. As trade barriers go down, firms may buy more
inputs from abroad, changing their priorities (Milner, 1988). Nonetheless, a
body of evidence suggests that domestic trade conflicts have pitted industries
against each other. Hiscox (2001) provides historical evidence from six Western countries and shows that periods of low factor mobility coincide with
strong industry-based lobbying. Similarly, using survey data from Norway,

Domestic Politics of Trade Policy

5

Alt, Carlsen, Heum, and Johansen (1999) show that lobbying increases as a
firm’s asset becomes more specific.
Nevertheless, these models had little to say about the rise of intra-industry
trade (Helpman, 1999). Ricardo-Viner and Heckscher–Ohlin expect countries
to specialize, trade being the mechanisms that enables them to do so. In
reality, however, large trade flows of very similar goods occur between
almost identical countries. New trade theory (and new new trade theory, its
recent avatar) filled this gap (Melitz, 2003). These models rejected the view
that firms can be thought of as homogeneous units within industries. Goods
are now differentiated, allowing countries to simultaneously import and
export cars, for instance. The implication is that the relevant unit of analysis
is not an industry, but the firms that constitute it.
Thus, attention has shifted from industries to firms. The decision to lobby,
for instance, is now modeled at the firm level (Gilligan, 1997). Even when
they operate in the same sector, firms vary along numerous dimensions.
Melitz (2003) shows that variation in productivity within an industry can
affect a firm’s stance with respect to exports, and hence can induce preferences over trade policy. In a similar manner, some firms may have access to
better technology (Yeaple, 2005). Overall, highly productive firms are more
likely to be exporters; least productive firms in an industry are likely to be
import-competing. When barriers to trade fall, it is the least competitive
firms that exit the industry, and it is these firms that are more likely to be
politically active in search of protection.
LOBBIES
While identifying individual and firm preferences is the first step toward a
complete model of trade policy, the next one is to specify how they influence
policymaking. In particular, how do these players overcome the so-called
coordination problem and make policy demands (Olson, 1965)? What we
now regard as a process to be explained and not just taken for granted–lobby
formation –was mainly ignored altogether until the seminal work by Grossman and Helpman (1994).
The main idea behind Grossman and Helpman’s (1994) theory of endogenous protection is best described by the paper’s title: “Protection for Sale.” It
argues that special interest groups can use campaign contributions to incentivize politicians to adopt favorable trade policies. The paper describes a
contribution schedule as the announcement by a lobby of the amount of campaign contributions it is willing to make in exchange for a given policy. The
equilibrium is then defined as “a set of contribution schedules such that each
lobby’s schedule maximizes the aggregate utility of the lobby’s members,
taking as given the schedules of other lobby groups.” All else being equal,

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

it is industries’ relative importing or exporting nature that will affect their
decision to deviate from free trade.
While Grossman and Helpman (1994) take the existence of organized
groups as given, Mitra (1999) seeks to explain the lobby formation process
itself. He shows that the equilibrium trade subsidy is not always positively
related to the government’s affinity for campaign contributions. This is
because high affinity for contributions leads to the formation of a large
number of opposing lobbies that cancel each other out. He also finds that
industries with large capital stocks, facing inelastic demand functions, with
few capital owners, and that are geographically concentrated are more likely
to get organized. Bombardini (2008) builds on this approach to argue that
the “Protection for Sale” paradigm cannot account for the effect of relative
firm size because it treats lobbies as unitary actors. Instead, she models
individual firms choosing the amount of resources allocated to campaign
contributions. She shows that (i) it is efficient for the largest firms in a sector
to form the lobby, and (ii) the degree of protection extended to a given
sector increases with the number of firms above a given size in that sector.
Empirically, this model explains a larger share of the variation in protection
across sectors than the “Protection for Sale” mechanism.
A second source of heterogeneity is the relative reliance of firms on
capital or labor. In Mitra (2000), heterogeneity arising from capital-rich and
labor-rich industries results in an equilibrium under which capitalists might
prefer protection to subsidies. Lobbying for protection instead of subsidies
can mitigate the coordination problem for capital-rich industries. On the
other hand, empirical evidence suggests that international competition
increases the likelihood of lobbying for subsidies for industries with high
specialization, that is, less mobility (Alt et al., 1999).
INSTITUTIONS
Early work pointed to the important determinative effects of domestic political institutions on trade policy. To quote Alt and Gilligan (1994, p. 166) “anyone theorizing about the state confronts issues arising from both institutions
and economic structure in figuring out distributional effects.” In this section
we elaborate on these issues, first by looking at the differential effects of
regime type, and then by discussing the consequences of institutional variation between democracies.
REGIME TYPE: DEMOCRACIES AND AUTOCRACIES
Democracies are shown to trade more freely (Rosendorff, 2006), and are generally more cooperative when it comes to international commercial policy.

Domestic Politics of Trade Policy

7

Explanations for this behavior emerge from models highlighting separation
of powers (Mansfield, Milner, & Rosendorff, 2000; Martin, 2000), electoral
accountability (Mansfield, Milner, & Rosendorff, 2002; Milner, Rosendorff, &
Mansfield, 2004), the presence of veto players (Mansfield, Milner, & Pevehouse, 2007; Mansfield & Milner, 2012), and an increased willingness to use
trade agreements to improve transparency (Hollyer & Rosendorff, 2012). Milner and Kubota (2005) argue that as democracy has emerged in labor-rich
countries, Stolper-Samuelson effects would lead to an increased demand for
freer trade. Electorally accountable leaders in labor-rich countries lower trade
barriers as democracy expands. In a more subtle vein, Kono (2006) argues that
democracy induces politicians to reduce transparent trade barriers but also
to replace them with less transparent ones.
Other characteristics of democratic polities have also emerged as important
determinants of trade policy. For instance, electoral accountability increases
the need for governments to be able to provide temporary relief for influential sectors and industries without violating international obligations.
This to preserve a cooperative trading stance in international relations.
Rosendorff and Milner (2001) show that international trade agreements are
designed to permit accountable governments (more likely to be democracies)
temporary relief from their obligations in the form of the safeguard and the
antidumping codes such as the WTO’s Anti-Dumping Agreement (see also
Rosendorff, 1996). The WTO’s dispute settlement procedures play a similar
role (Rosendorff, 2005).
INTRADEMOCRATIC VARIATION
Electoral Rule Institutional variations between democracies are relevant as
well. Majoritarian electoral systems impart a protectionist bias to trade
policy (Grossman & Helpman, 2005). This echoes Rogowski (1987) who
suggested that large district proportional representation parliamentary
systems are best for protecting free(r) trade. In contrast, Ehrlich (2007)
suggests that once the number of parties in government and the number
of electoral districts are controlled for, proportional representation has no
impact on trade policy. Evans (2009) tests Grossman and Helpman’s (2005)
claim and finds that countries with majoritarian systems indeed appear to
have higher average tariffs than do countries with proportional systems.
This result holds after controlling for country-specific characteristics, such
as a country’s legal origins, colonial history, and geographic location.
Rickard (2012) expands the investigation to find the protectionist bias in
majoritarian systems extends beyond tariffs to include state production
subsidies too.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Parties and Party Discipline Party ideology, and the degree to which party
members are required to vote the party line affect a state’s protectionist
stance. Dutt and Mitra (2005) establish that, vis-à-vis rightwing governments,
left-wing leaders adopt more protectionist trade policies in capital-rich countries, but adopt more pro-trade policies in labor-rich countries. Similarly,
Milner and Judkins (2004) find that right-wing parties take more free trade
stances than do left ones in developed countries.
District marginality interacts with party discipline in crucial ways
(McGillivray, 1997; McGillivray & Smith, 1997). In majoritarian systems with
high levels of party discipline, trade policies will favor voters in marginal
districts; with low party discipline, trade policies will favor large, electorally
dispersed industries. Hence, industries concentrated in marginal districts
are expected to be the least favorably protected while large industries
geographically dispersed over many electoral districts receive the most
favorable protection.
Divided Government and Veto Players. The structure of negotiation over trade
policy between the executive and legislative branches has several implications as well. If presidents can negotiate agreements that do not require
congressional approval they may still decide to engage in that domestic
negotiation as a signal of intent to comply with it (Martin, 2005). However,
the terms of that negotiation will partially reflect protectionist preferences of
the legislature branch (Dai, 2006). In particular, divided government requires
the executive to assemble a congressional majority, thus constraining her to
provide higher protection (Lohmann & O’Halloran, 1994). Moreover, divided
government not only impacts the depth of international agreements, it also
increases the probability of ratification failures (Milner & Rosendorff, 1997).
Others branches of government also influence trade policy. The key aspect
here is the presence of veto players, that is, actors who might block the ratification of a trade treaty, and thus impose new constrains during the negotiation. Evidence shows that an increase in the number of veto players has
two main consequences: first, it increases the time that takes to ratify international trade agreements (Mansfield & Milner, 2012), and second, reduces
the likelihood of signing new ones (Mansfield et al., 2007).
INFORMATION: THE FEEDBACK LOOP
So far, we explained trade policies as a function of domestic politics.
However, trade, operating as a feedback loop, also shapes domestic politics.
Specifically, trade and trade-related institutions may provide information to
domestic audiences and enable policymakers to send them signals.

Domestic Politics of Trade Policy

9

Economies fluctuate along boom and bust cycles. Generally, domestic
audiences are imperfectly informed about the responsibility of their leaders
for these busts. Poor performances may be due to chance (or, more accurately, bad luck) but they could also be due to their leader’s poor policies.
For instance, high trade barriers create inefficiencies that hurt economic
productivity. In the absence of third party monitoring, audiences may be
unable to attribute responsibility. International organizations and treaties
provide a solution to this information problem (Mansfield et al., 2002).
International institutions generally monitor their members’ behavior and
include a system to address complaints about noncompliance. This is the
case, for instance, for trade institutions such as the WTO. Domestic leaders
who worry about being accused of poor economic management may thus
have an incentive to join these institutions. Since bad economic governance
(such as increasing undue subsidies to favored industries) would likely trigger a complaint, Mansfield et al. (2002) argue that international institutions
provide information to domestic audiences. The absence of complaint is
interpreted as sound policies, while accusations of cheating are interpreted
as poor policies.
A related stream of literature focuses on policymakers’ ability to send signals to domestic audiences. Political leaders may be unable to credibly commit to an optimal policy. For instance, governments may be unable to enforce
a reduction in trade barriers if domestic industries know that their support is
important to them. In other words, governments suffer from a time inconsistency problem (Staiger & Tabellini, 1987). Joining international institutions
can thus be a mechanism for governments to credibly signal to their domestic audience their commitment to good economic and trade policies (Mansfield & Pevehouse, 2006). Maggi and Rodriguez-Clare (1998) argue that this is
particularly likely to occur when governments are relatively weak compared
to domestic lobbies. They make the paradoxical prediction that it is countries
that have strong interest groups that are the most likely to end up with freer
trade.
Both the information and the signaling mechanisms depend on international events updating domestic preferences. A recent stream of literature
has thus attempted to tackle whether domestic audiences pay attention to
trade disputes. Drawing on Google search data, Pelc (2012) shows that the
number of searches about the WTO increases in the United States when a
trade dispute occurs. This is consistent with the view that domestic audiences are particularly attentive to mishaps by their government. However,
this ignores that domestic agents are not homogeneous, nor is their interest in trade issues always the same. Chaudoin (2014) argues that audiences
are more likely to pay attention to the implications of trade disputes when
macroeconomic conditions are benign.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

THE NEXT STEPS
Our review suggests that the literature is moving in three related directions.
First, recent research has built on nuanced trade theories that are rooted at the
micro level. New trade theory underscores the importance of disaggregating
industries to understand what drives firms’ preferences. Similarly, drawing
on experimental methods, scholars are seeking a deeper understanding of the
roots of individual views about trade. What remains to be seen is how well
these models apply to countries beside the United States. In particular, future
research on the preferences of firms and individuals located in developing
countries may be fruitful.
The second stream of research has focused on the mediating role that
institutions have on trade policies. As trade policies have potent distributional implications, our understanding of trade politics relies heavily on
studying the rules of collective decision-making. In particular, scholars have
been interested both in differences between democracies and autocracies,
and in variations among democracies. In comparison, trade policies in
authoritarian regimes have remained relatively understudied.
Finally, scholars have sought to understand how international trade
relations affect domestic politics. International institutions and trade disputes release valuable information to citizens. Future research will have to
explicitly model how this information is processed by individuals and how
it affects the policy-making process. Under which circumstances are citizens
sensitive to new information? In addition, does their sensitivity depend on
the institutional context in which they are embedded?
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Mansfield, E. D., & Pevehouse, J. C. (2006). Democratization and international organizations. International Organization, 60(1), 137–167.
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McGillivray, F. (1997). Party discipline as a determinant of the endogenous formation
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McGillivray, F., & Smith, A. (1997). Institutional determinants of trade policy. International Interactions, 23(2), 119–143.
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wages. Journal of International Economics, 65(1), 1–20.

MICHAËL AKLIN SHORT BIOGRAPHY
Michaël Aklin is Assistant Professor of Political Science at the University
of Pittsburgh. His research focuses on international and comparative political economy with applications to finance and environmental issues, and
has been published in journals such as the American Journal of Political Science, International Studies Quarterly, Global Environmental Change, and Ecological Economics. http://www.pitt.edu/∼aklin/
ERIC ARIAS SHORT BIOGRAPHY
Eric Arias is a PhD. candidate in Politics at New York University. His interests
lie in international and comparative political economy with a focus on the
international sources of domestic policy.
EMINE DENIZ SHORT BIOGRAPHY
Emine Deniz is a PhD. candidate in Politics at New York University. Her
research interests lie in political economy and formal modeling.
B. PETER ROSENDORFF SHORT BIOGRAPHY
B. Peter Rosendorff is Professor of Politics at New York University. He
is editor of the interdisciplinary journal, Economics and Politics, and is
an editorial board member of International Organization. He has held
grants from the National Science Foundation, the Japan Foundation,

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

among others. His research interests include the UN Convention against
Torture, the World Trade Organization, political economy of terrorism,
bilateral trade, and investment treaties. His work has been published in
journals such as the American Economic Review, American Political Science
Review, International Organization, and Quarterly Journal of Political Science.
https://files.nyu.edu/bpr1/public/
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Domestic Politics of Trade Policy
MICHAËL AKLIN, ERIC ARIAS, EMINE DENIZ, and B. PETER ROSENDORFF

Abstract
Domestic politics shape international trade policy, but exactly how and why remains
an open question. We explore the cutting-edge literature that focuses on how agents’
interests are formed, whose interests are organized, and how those interests interact
with each other via domestic political institutions to generate both trade policy and
international cooperation over trade more broadly. In turn, trade policies operate as
a feedback loop. International cooperation generates information via international
organizations, treaties, and more informal regimes, which affects the domestic politics conflict in substantive ways. We explore each of these topics and suggest future
research paths.

INTRODUCTION
That domestic politics matters for trade policy is now a well-established trope
in both economics and political science. International trade and international
relations more generally are not determined by a sole national executive,
acting autonomously and isolated from the pressures of domestic political
interests when choosing tariff levels, health and safety rules and regulations,
or other elements of trade policy. Instead, trade policy, like any other domain
of public policy, is determined by the interplay of domestic economic interests, domestic political institutions, and the information that is available to
all involved players.
The research agenda in the recent period has been to identify not merely
that domestic politics matters, but instead to determine why it matters. This
means, essentially, understanding who the important players in the trade
policy process and what their interests or preferences are. These preferences
vary across groups, be they industries, factor owners (i.e., the “owners” of
inputs such as labor, capital, or land), an agent’s role as producer or consumer, or as an upstream or downstream firm. The groups themselves may
or may not be organized politically, and may or may not have political clout.
The ability of any group to influence a policy outcome or the trade policy
agenda will depend on the structure and nature of the domestic political
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

1

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

process–the set of mechanisms that mediate political conflict, and transmit
preferences into policy, which we call institutions. Finally, the international
arrangements that are made to govern these trade policies in themselves
generate information that impacts both the political strength of the domestic
interested parties and the trade policies that are chosen. There is, in a sense,
a “feedback-loop” leading back from trade policies, agreements, and international organizations that impacts the political influence of the domestic
interests.
To understand how domestic politics matters for trade policy, we must
recognize the crucial interaction of interests and institutions on trade policy, and of information generated by implemented trade policy on domestic
interests (mediated by the domestic institutions). In what follows we explore
the cutting-edge literature that focuses on how interests are formed, whose
interests are organized, and how those interests interact with each other via
domestic political institutions to generate both trade policy and international
cooperation over trade more broadly. International cooperation via international organizations, treaties, and more informal regimes, in turn generate
information that affects the domestic politics conflict in substantive ways.
INTERESTS: INDIVIDUALS, GROUPS AND THEIR PREFERENCES
International trade theory offers a natural starting point for the political economy of protection. The canonical Heckscher–Ohlin model offers a simple
account of two countries that have two factors of production (labor and capital) and trade two goods. When trade barriers such as tariffs are removed,
each country will specialize in the production of the good that requires (relatively) more input from the factor that is (relatively) abundant in that country.
Thus, industrialized countries are predicted to shift production toward goods
that require a lot of capital, while developing countries will focus on goods
that require relatively more labor. This class-based model of trade generates,
via the Stolper–Samuelson theorem, the very neat claim that barriers to trade
will benefit the owners of the relatively scarce factor, and harm the owners of the relatively abundant factor. Barriers to trade in the United States,
for example, benefit the unskilled labor and harm skilled labor—since the
United States has relatively less unskilled labor than most of its trading partners (Leamer, 1984).
Early approaches took these groups and their induced preferences over
trade policy as given. It seemed a reasonable assumption that unskilled labor
in the United States would be opposed to free trade agreements, while owners of capital would be in favor. These preferences over trade policy were “induced” because they emerged from the underlying preferences over income

Domestic Politics of Trade Policy

3

and consumption (i.e., more income is better; Persson & Tabellini, 2000). Attitudes to trade therefore are closely correlated with factor-ownership or class.
The Ricardo-Viner (or “specific factors”) model of international trade
induces preferences over trade policy along industry lines, and thus is at
odds with the predictions from the Heckscher–Ohlin/Stolper–Samuelson
model. Ricardo-Viner stipulates that, in the aftermath of trade liberalization,
one factor of production cannot be reassigned to a new industry. For
instance, people who work in the textile industry cannot easily migrate to
the computer sector. Thus, that factor’s fortunes are tightly entwined to
the sector to which it is specific. Industries that expand owing to international trade see their revenues increase along with their increased exports;
industries that suffer owing to import-competition are expected to oppose
liberalization. The Ricardo-Viner view thus predicts that induced preferences are determined by an individual’s location within an industry rather
than the class to which she belongs.
Both models make very clear that trade (and conversely, protection)
redistribute income from one group to another. Recent scholarship has
made significant progress in identifying the politically relevant groups and
their interests. A key aspect of this endeavor is to understand how those
interests are aggregated and how they influence policymaking. We discuss
this work below by looking at individual level preferences: first, industry
and firm level preferences next, and finally, how they go about making
policy demands.
INDIVIDUALS AND PUBLIC OPINION
Studies of trade preferences at the individual level have grown rapidly over
the past two decades thanks to improvements in survey data collection. Overall, this research has contributed in two ways: first, by testing the predictions
of international trade theory, and second by finding complementary accounts
of the determinants of trade policy attitudes, giving rise to a debate on the
relative importance of material versus non-material factors.
Measuring skills by education and occupation wages, the predictions of the
Heckscher–Ohlin model are supported by United States (Scheve & Slaughter, 2001) and cross-country survey data (Mayda & Rodrik, 2005). In contrast, using industry of employment, evidence supporting the Ricardo-Viner
model is mixed. Mayda and Rodrik (2005) find evidence for this model, while
Scheve and Slaughter (2001) do not.
Scholars also sought to uncover noneconomic determinants of trade policy
attitudes. Some authors argue that local attachments and nationalistic sentiments are correlated with support for protectionist policies (Mansfield &

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Mutz, 2009). Others argue that the effect of education on individual preferences goes beyond skills acquisition. Education may expose people to economic and cosmopolitan ideas that emphasize the benefits of globalization,
and thus have an indirect effect on trade policy preferences (Hainmueller &
Hiscox, 2006). Finally, education also mediates the effects of issue framing
on trade policy preferences. Using a survey experiment, Hiscox (2006) shows
that the wording of survey questions has systematic biases in responses, but
these biases are weaker among highly educated individuals.
Scholars emphasizing the role of material interests did not take long
to respond. Ardanaz, Murillo, and Pinto (2013) replicate Hiscox’s (2006)
design explicitly considering the impact of trade on individuals’ income.
They use the respondent’s region to determine whether she lives in an
import-competing area (which stands to lose from trade) or not, and examine how it affects respondents’ biases to different questions. They find that
people living in import-competing areas are less likely to be influenced
by the framing of the question. This is because those individuals whose
income is closely affected by trade have more knowledge about the effect
of trade openness in their own income, making them less sensitive to other
informational cues.
FIRMS AND INDUCED TRADE POLICY
Social scientists have studied trade at a second level of analysis, namely from
the perspective of firms and industrial sectors. This aggregation is natural for
various reasons. First, firms are well-organized institutions and thus often
able to formulate policy demands (Grossman & Helpman, 1994). Second,
they have access to vast resources, which is helpful when lobbying politicians. Finally, firms and entire industries may be directly affected by trade
policies.
The last point is particularly salient and informed early models of industry
trade preferences (Milner, 1999). As discussed above, the Ricardo-Viner trade
model predicts that if some factors of production are tied to their industries,
then trade preferences will be defined along industrial lines. Thus, the relevant units are industries, and what individuals want (if they matter at all)
will depend on who their employer is. Of course, how mobile factors such
as labor are may change over time (Hiscox, 2001). Furthermore, industries’
preferences may evolve. As trade barriers go down, firms may buy more
inputs from abroad, changing their priorities (Milner, 1988). Nonetheless, a
body of evidence suggests that domestic trade conflicts have pitted industries
against each other. Hiscox (2001) provides historical evidence from six Western countries and shows that periods of low factor mobility coincide with
strong industry-based lobbying. Similarly, using survey data from Norway,

Domestic Politics of Trade Policy

5

Alt, Carlsen, Heum, and Johansen (1999) show that lobbying increases as a
firm’s asset becomes more specific.
Nevertheless, these models had little to say about the rise of intra-industry
trade (Helpman, 1999). Ricardo-Viner and Heckscher–Ohlin expect countries
to specialize, trade being the mechanisms that enables them to do so. In
reality, however, large trade flows of very similar goods occur between
almost identical countries. New trade theory (and new new trade theory, its
recent avatar) filled this gap (Melitz, 2003). These models rejected the view
that firms can be thought of as homogeneous units within industries. Goods
are now differentiated, allowing countries to simultaneously import and
export cars, for instance. The implication is that the relevant unit of analysis
is not an industry, but the firms that constitute it.
Thus, attention has shifted from industries to firms. The decision to lobby,
for instance, is now modeled at the firm level (Gilligan, 1997). Even when
they operate in the same sector, firms vary along numerous dimensions.
Melitz (2003) shows that variation in productivity within an industry can
affect a firm’s stance with respect to exports, and hence can induce preferences over trade policy. In a similar manner, some firms may have access to
better technology (Yeaple, 2005). Overall, highly productive firms are more
likely to be exporters; least productive firms in an industry are likely to be
import-competing. When barriers to trade fall, it is the least competitive
firms that exit the industry, and it is these firms that are more likely to be
politically active in search of protection.
LOBBIES
While identifying individual and firm preferences is the first step toward a
complete model of trade policy, the next one is to specify how they influence
policymaking. In particular, how do these players overcome the so-called
coordination problem and make policy demands (Olson, 1965)? What we
now regard as a process to be explained and not just taken for granted–lobby
formation –was mainly ignored altogether until the seminal work by Grossman and Helpman (1994).
The main idea behind Grossman and Helpman’s (1994) theory of endogenous protection is best described by the paper’s title: “Protection for Sale.” It
argues that special interest groups can use campaign contributions to incentivize politicians to adopt favorable trade policies. The paper describes a
contribution schedule as the announcement by a lobby of the amount of campaign contributions it is willing to make in exchange for a given policy. The
equilibrium is then defined as “a set of contribution schedules such that each
lobby’s schedule maximizes the aggregate utility of the lobby’s members,
taking as given the schedules of other lobby groups.” All else being equal,

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

it is industries’ relative importing or exporting nature that will affect their
decision to deviate from free trade.
While Grossman and Helpman (1994) take the existence of organized
groups as given, Mitra (1999) seeks to explain the lobby formation process
itself. He shows that the equilibrium trade subsidy is not always positively
related to the government’s affinity for campaign contributions. This is
because high affinity for contributions leads to the formation of a large
number of opposing lobbies that cancel each other out. He also finds that
industries with large capital stocks, facing inelastic demand functions, with
few capital owners, and that are geographically concentrated are more likely
to get organized. Bombardini (2008) builds on this approach to argue that
the “Protection for Sale” paradigm cannot account for the effect of relative
firm size because it treats lobbies as unitary actors. Instead, she models
individual firms choosing the amount of resources allocated to campaign
contributions. She shows that (i) it is efficient for the largest firms in a sector
to form the lobby, and (ii) the degree of protection extended to a given
sector increases with the number of firms above a given size in that sector.
Empirically, this model explains a larger share of the variation in protection
across sectors than the “Protection for Sale” mechanism.
A second source of heterogeneity is the relative reliance of firms on
capital or labor. In Mitra (2000), heterogeneity arising from capital-rich and
labor-rich industries results in an equilibrium under which capitalists might
prefer protection to subsidies. Lobbying for protection instead of subsidies
can mitigate the coordination problem for capital-rich industries. On the
other hand, empirical evidence suggests that international competition
increases the likelihood of lobbying for subsidies for industries with high
specialization, that is, less mobility (Alt et al., 1999).
INSTITUTIONS
Early work pointed to the important determinative effects of domestic political institutions on trade policy. To quote Alt and Gilligan (1994, p. 166) “anyone theorizing about the state confronts issues arising from both institutions
and economic structure in figuring out distributional effects.” In this section
we elaborate on these issues, first by looking at the differential effects of
regime type, and then by discussing the consequences of institutional variation between democracies.
REGIME TYPE: DEMOCRACIES AND AUTOCRACIES
Democracies are shown to trade more freely (Rosendorff, 2006), and are generally more cooperative when it comes to international commercial policy.

Domestic Politics of Trade Policy

7

Explanations for this behavior emerge from models highlighting separation
of powers (Mansfield, Milner, & Rosendorff, 2000; Martin, 2000), electoral
accountability (Mansfield, Milner, & Rosendorff, 2002; Milner, Rosendorff, &
Mansfield, 2004), the presence of veto players (Mansfield, Milner, & Pevehouse, 2007; Mansfield & Milner, 2012), and an increased willingness to use
trade agreements to improve transparency (Hollyer & Rosendorff, 2012). Milner and Kubota (2005) argue that as democracy has emerged in labor-rich
countries, Stolper-Samuelson effects would lead to an increased demand for
freer trade. Electorally accountable leaders in labor-rich countries lower trade
barriers as democracy expands. In a more subtle vein, Kono (2006) argues that
democracy induces politicians to reduce transparent trade barriers but also
to replace them with less transparent ones.
Other characteristics of democratic polities have also emerged as important
determinants of trade policy. For instance, electoral accountability increases
the need for governments to be able to provide temporary relief for influential sectors and industries without violating international obligations.
This to preserve a cooperative trading stance in international relations.
Rosendorff and Milner (2001) show that international trade agreements are
designed to permit accountable governments (more likely to be democracies)
temporary relief from their obligations in the form of the safeguard and the
antidumping codes such as the WTO’s Anti-Dumping Agreement (see also
Rosendorff, 1996). The WTO’s dispute settlement procedures play a similar
role (Rosendorff, 2005).
INTRADEMOCRATIC VARIATION
Electoral Rule Institutional variations between democracies are relevant as
well. Majoritarian electoral systems impart a protectionist bias to trade
policy (Grossman & Helpman, 2005). This echoes Rogowski (1987) who
suggested that large district proportional representation parliamentary
systems are best for protecting free(r) trade. In contrast, Ehrlich (2007)
suggests that once the number of parties in government and the number
of electoral districts are controlled for, proportional representation has no
impact on trade policy. Evans (2009) tests Grossman and Helpman’s (2005)
claim and finds that countries with majoritarian systems indeed appear to
have higher average tariffs than do countries with proportional systems.
This result holds after controlling for country-specific characteristics, such
as a country’s legal origins, colonial history, and geographic location.
Rickard (2012) expands the investigation to find the protectionist bias in
majoritarian systems extends beyond tariffs to include state production
subsidies too.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Parties and Party Discipline Party ideology, and the degree to which party
members are required to vote the party line affect a state’s protectionist
stance. Dutt and Mitra (2005) establish that, vis-à-vis rightwing governments,
left-wing leaders adopt more protectionist trade policies in capital-rich countries, but adopt more pro-trade policies in labor-rich countries. Similarly,
Milner and Judkins (2004) find that right-wing parties take more free trade
stances than do left ones in developed countries.
District marginality interacts with party discipline in crucial ways
(McGillivray, 1997; McGillivray & Smith, 1997). In majoritarian systems with
high levels of party discipline, trade policies will favor voters in marginal
districts; with low party discipline, trade policies will favor large, electorally
dispersed industries. Hence, industries concentrated in marginal districts
are expected to be the least favorably protected while large industries
geographically dispersed over many electoral districts receive the most
favorable protection.
Divided Government and Veto Players. The structure of negotiation over trade
policy between the executive and legislative branches has several implications as well. If presidents can negotiate agreements that do not require
congressional approval they may still decide to engage in that domestic
negotiation as a signal of intent to comply with it (Martin, 2005). However,
the terms of that negotiation will partially reflect protectionist preferences of
the legislature branch (Dai, 2006). In particular, divided government requires
the executive to assemble a congressional majority, thus constraining her to
provide higher protection (Lohmann & O’Halloran, 1994). Moreover, divided
government not only impacts the depth of international agreements, it also
increases the probability of ratification failures (Milner & Rosendorff, 1997).
Others branches of government also influence trade policy. The key aspect
here is the presence of veto players, that is, actors who might block the ratification of a trade treaty, and thus impose new constrains during the negotiation. Evidence shows that an increase in the number of veto players has
two main consequences: first, it increases the time that takes to ratify international trade agreements (Mansfield & Milner, 2012), and second, reduces
the likelihood of signing new ones (Mansfield et al., 2007).
INFORMATION: THE FEEDBACK LOOP
So far, we explained trade policies as a function of domestic politics.
However, trade, operating as a feedback loop, also shapes domestic politics.
Specifically, trade and trade-related institutions may provide information to
domestic audiences and enable policymakers to send them signals.

Domestic Politics of Trade Policy

9

Economies fluctuate along boom and bust cycles. Generally, domestic
audiences are imperfectly informed about the responsibility of their leaders
for these busts. Poor performances may be due to chance (or, more accurately, bad luck) but they could also be due to their leader’s poor policies.
For instance, high trade barriers create inefficiencies that hurt economic
productivity. In the absence of third party monitoring, audiences may be
unable to attribute responsibility. International organizations and treaties
provide a solution to this information problem (Mansfield et al., 2002).
International institutions generally monitor their members’ behavior and
include a system to address complaints about noncompliance. This is the
case, for instance, for trade institutions such as the WTO. Domestic leaders
who worry about being accused of poor economic management may thus
have an incentive to join these institutions. Since bad economic governance
(such as increasing undue subsidies to favored industries) would likely trigger a complaint, Mansfield et al. (2002) argue that international institutions
provide information to domestic audiences. The absence of complaint is
interpreted as sound policies, while accusations of cheating are interpreted
as poor policies.
A related stream of literature focuses on policymakers’ ability to send signals to domestic audiences. Political leaders may be unable to credibly commit to an optimal policy. For instance, governments may be unable to enforce
a reduction in trade barriers if domestic industries know that their support is
important to them. In other words, governments suffer from a time inconsistency problem (Staiger & Tabellini, 1987). Joining international institutions
can thus be a mechanism for governments to credibly signal to their domestic audience their commitment to good economic and trade policies (Mansfield & Pevehouse, 2006). Maggi and Rodriguez-Clare (1998) argue that this is
particularly likely to occur when governments are relatively weak compared
to domestic lobbies. They make the paradoxical prediction that it is countries
that have strong interest groups that are the most likely to end up with freer
trade.
Both the information and the signaling mechanisms depend on international events updating domestic preferences. A recent stream of literature
has thus attempted to tackle whether domestic audiences pay attention to
trade disputes. Drawing on Google search data, Pelc (2012) shows that the
number of searches about the WTO increases in the United States when a
trade dispute occurs. This is consistent with the view that domestic audiences are particularly attentive to mishaps by their government. However,
this ignores that domestic agents are not homogeneous, nor is their interest in trade issues always the same. Chaudoin (2014) argues that audiences
are more likely to pay attention to the implications of trade disputes when
macroeconomic conditions are benign.

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THE NEXT STEPS
Our review suggests that the literature is moving in three related directions.
First, recent research has built on nuanced trade theories that are rooted at the
micro level. New trade theory underscores the importance of disaggregating
industries to understand what drives firms’ preferences. Similarly, drawing
on experimental methods, scholars are seeking a deeper understanding of the
roots of individual views about trade. What remains to be seen is how well
these models apply to countries beside the United States. In particular, future
research on the preferences of firms and individuals located in developing
countries may be fruitful.
The second stream of research has focused on the mediating role that
institutions have on trade policies. As trade policies have potent distributional implications, our understanding of trade politics relies heavily on
studying the rules of collective decision-making. In particular, scholars have
been interested both in differences between democracies and autocracies,
and in variations among democracies. In comparison, trade policies in
authoritarian regimes have remained relatively understudied.
Finally, scholars have sought to understand how international trade
relations affect domestic politics. International institutions and trade disputes release valuable information to citizens. Future research will have to
explicitly model how this information is processed by individuals and how
it affects the policy-making process. Under which circumstances are citizens
sensitive to new information? In addition, does their sensitivity depend on
the institutional context in which they are embedded?
REFERENCES
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MICHAËL AKLIN SHORT BIOGRAPHY
Michaël Aklin is Assistant Professor of Political Science at the University
of Pittsburgh. His research focuses on international and comparative political economy with applications to finance and environmental issues, and
has been published in journals such as the American Journal of Political Science, International Studies Quarterly, Global Environmental Change, and Ecological Economics. http://www.pitt.edu/∼aklin/
ERIC ARIAS SHORT BIOGRAPHY
Eric Arias is a PhD. candidate in Politics at New York University. His interests
lie in international and comparative political economy with a focus on the
international sources of domestic policy.
EMINE DENIZ SHORT BIOGRAPHY
Emine Deniz is a PhD. candidate in Politics at New York University. Her
research interests lie in political economy and formal modeling.
B. PETER ROSENDORFF SHORT BIOGRAPHY
B. Peter Rosendorff is Professor of Politics at New York University. He
is editor of the interdisciplinary journal, Economics and Politics, and is
an editorial board member of International Organization. He has held
grants from the National Science Foundation, the Japan Foundation,

14

EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

among others. His research interests include the UN Convention against
Torture, the World Trade Organization, political economy of terrorism,
bilateral trade, and investment treaties. His work has been published in
journals such as the American Economic Review, American Political Science
Review, International Organization, and Quarterly Journal of Political Science.
https://files.nyu.edu/bpr1/public/
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