Reactions and Reciprocity

Abstract

If one country lowers its tariffs, other countries might follow suit by liberalizing or defend their market by raising tariffs or do nothing at all. The question of a state's reaction to the tariff policy of another has been undertheorized, although it plays an important, implicit role in debates between theories. To understand these reactions, the author proposes a model of trade policy and tariff reciprocity that encompasses variables from both the domestic and international levels of analysis in a way that is compatible with several different theories. Two major testable propositions follow from the analysis. First, two countries' tariffs will move in opposite directions without trade agreements. Second, two countries' tariffs will move in the same direction when they have signed a trade agreement. These hypotheses find substantial support in both quantitative and qualitative tests against the period from 1815 to 1914, when there was substantial variation in countries' willingness to sign reciprocal tariff agreements.

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