Tit-for-Tat in Trade: How Political Bias Leads to Trade Disputes

• 발행기관: 한국무역학회
• 저자명: Sihoon Nahm
• 간행물 정보: 『Journal of Korea Trade (JKT)』Vol.29 No.5, 1~29쪽, 전체 29쪽
• 주제분류: 경제경영 > 무역학
• 파일형태: PDF
• 발행일자: 2025.08.31

국문 초록

Purpose - This paper examines how unstable trade disputes arise under a Tit-for-Tat (TFT) strategy when political bias is private information. It categorizes trade states into Free Trade, Protectionist, and Trade Dispute, demonstrating how a Trade Dispute emerges under different levels of political bias and information asymmetry. Design/Methodology - The model considers two trading countries that determine trade policies. While imposing tariffs is a dominant strategy, TFT can sustain Free Trade with retaliatory threats under certain conditions. Countries may impose tariffs either to maximize surplus or as a retaliatory measure. Political bias parameters remain private information. I analyze how different trade states emerge under varying political biases and compute the resulting surplus. Findings - TFT functions when retaliation is explicitly declared and enforced. If countries develop a stronger protectionist bias, they adopt the dominant strategy of raising tariffs and enter the Protectionist State. However, when the political bias level is private information, a country may strategically impose higher tariffs under the guise of retaliation, pressuring its counterpart to lower tariffs while maintaining high tariffs itself. The initial tariff-imposing country cannot discern its counterpart’s true intent, destabilizing TFT and leading to the Trade Dispute State. Originality/value - This paper explains the rise of protectionism and trade disputes using a single TFT model. A stable Protectionist State emerges when political bias is strong, whereas an unstable Trade Dispute State arises when political bias is moderately strong and its level is private information.

목차

1. Introduction

2. Baseline Models: TFT with Two Levels of Tariffs

3. Trade Policy Equilibrium Results under Variable Policy Options

4. Conclusion

References

키워드

International Political Economy Retaliation Tariffs Tit-for-Tat Trade Disputes