Handbook on International Trade Policy
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Handbook on International Trade Policy

Edited by William A. Kerr and James D. Gaisford

The Handbook on International Trade Policy is an insightful and comprehensive reference tool focusing on trade policy issues in the era of globalization. Each specially commissioned chapter deals with important international trade issues, discusses the current literature on the subject, and explores major controversies. The Handbook also directs the interested reader to further sources of information.
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Chapter 6: Why Are There Trade Agreements?

James Gaisford and Annette Hester


James Gaisford and Annette Hester Introduction Even the most cursory look at the conduct of trade policy suggests two predominant facts. On the one hand, countries rarely pursue free trade as a unilateral policy. On the other hand, countries frequently do pursue trade agreements on a multilateral or regional level. The purpose of this chapter is to shed light on these two central features concerning the conduct of trade policy. While most international trade textbooks provide reasonable explanations for unilateral trade policy interventions, their accounts of trade liberalization under the guise of trade agreements are frequently weaker, and their treatments of the connections between interventionism and liberalization are often lacking entirely. A cogent explanation of the relationship between trade policy interventionism and liberalization, however, can be gleaned from a strand of the literature addressing retaliatory tariffs, which was pioneered by Johnson (1953) and elaborated by Dixit (1987) and many others. This chapter draws heavily on Dixit in particular. In the past 200 years, there have been few countries that have refrained from using trade-policy measures. Two examples of jurisdictions that have approximated a free-trade stance are Britain at the end of the nineteenth century and Hong Kong in the later twentieth century. At the other end of the spectrum, countries seldom cut off trade completely. The communist regime in Albania attempted to pursue a policy of economic isolation or autarky after World War II and China followed suit for a shorter time period during the Cultural Revolution. While these...

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