Strategic trade policy: how new? how sensible?

Abstract

This paper reviews some recent developments in the theory of trade policy that have to do with imperfect competition, strategic interactions as a result of oligopoly, and economies of scale. All these developments have been described as the"new international economics."In the view of some they represent major breakthroughs. One purpose of this paper is to examine how new some of this is and how it relates to the orthodox theory. The paper will focus on one major aspect of these developments, namely"Brander-Spencer profit sharing"and its policy implications. The conclusion is that it relates closely to the existing framework of the orthodox theory of trade policy.

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