Power in international trade negotiations

Project Information

TRADEPOWER

Grant agreement ID: 724107

DOI

10.3030/724107

Project closed

EC signature date 7 April 2017

Start date 1 July 2017

End date 30 June 2023

Funded under

• EXCELLENT SCIENCE - European Research Council (ERC)

Total cost

€ 1 705 833,00

EU contribution

€ 1 705 833,00

Coordinated by

PARIS-LODRON-UNIVERSITAT SALZBURG
Austria

Periodic Reporting for period 4 - TRADEPOWER (Power in international trade negotiations)

Reporting period: 2022-01-01 to 2023-06-30

Summary of the context and overall objectives of the project

The main expectation of the TRADEPOWER project was that the rise of global value chains (GVCs) has led to significant changes in trade policy and politics that also produce a shift in countries’ bargaining power. GVCs exist when different steps of a production process are located in different countries. For example, the design of a smartphone may be from South Korea, its chip from Taiwan, the assembly done in China, and the software from India.

Over the course of six years, the project analysed the various steps linking GVCs and power in international trade agreements. Specifically, we empirically scrutinized the trade preferences of citizens and other societal actors; the determinants of decision-makers’ preferences; the factors that affect the design and consequences of trade agreements; and what all of this means for bargaining power.

Studying trade policy and politics is relevant for society for several reasons: First, trade policy has consequences for most people, whether directly (e.g. when imports displace jobs) or indirectly (e.g. when protectionist measures increase consumer prices in a country). Thus, citizens, aware or not, are affected by trade policy in their daily lives and well-being. Understanding why we observe certain policies over others has broad implications for democracy.

Second, many developed countries have recently witnessed a backlash to globalization. Understanding trade politics is key to understanding and possibly reacting to this backlash. Third, the question of bargaining power in international negotiations is highly pertinent at a moment when we see a general shift in the international balance of power. How does the growing importance of countries such as China matter for trade negotiations? Who gets to write the rules governing international trade? These are just some of the questions to which the current project speaks.

Finally, many important trade negotiations are currently ongoing. As indicated before, these negotiations affect both countries’ aggregate welfare and the distribution of income within countries. Better understanding these negotiations hence is of broad public interest.

The overall objective of the project hence has been to shed light on novel developments in the politics of trade produced by the globalization of production.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

The project studied the various steps linking global value chains (GVCs) and power in international trade agreements: from the trade preferences of various kinds of societal actors, via the preferences of decision-makers, to the consequences of trade agreements and what this means for bargaining power.

The first step in the argument is that GVCs alter the trade preferences of societal actors. To assess this expectation, we conducted a survey of interest groups active in trade policy. This survey, which we fielded in the spring of 2019, received responses from 691 organizations from across the globe. We could use these data to shed new light on both interest groups’ trade preferences and how they matter for the politics of trade.

Using both existing public opinion polls and new surveys, we also studied citizens’ trade attitudes and found that economic considerations are important in shaping public opinion on trade. We could also show, however, that citizens do not just aim to maximize their personal gains from trade. Instead, our results indicate that citizens aim for an equal distribution of the gains from trade within society.

Following much of the trade policy literature, the preferences of these societal actors should be reflected in the preferences of decision-makers. Indeed, we found that legislators from electoral districts that are competitive in manufacturing are more supportive of trade agreements than legislators from non-competitive districts. This finding of legislators taking into account their constituency’s economic interests was also supported in a further study using data on votes on trade agreements.

We also carried out a survey with legislators from 47 countries across the globe. The more than 1,000 responses we received allow us to better understand the factors that shape legislators’ responsiveness to citizens and business interests when deciding on trade policy.

This research on legislators’ trade preferences required data on the trade competitiveness of subnational regions across many countries and over time. As a result, we put together a comprehensive dataset that contains several measures of the subnational trade competitiveness of 6,475 regions across 63 countries over a period of 21 years (the figure enclosed explains the methodology used to calculate these measures).

Via the changes in trade preferences, GVCs should alter the bargaining power of countries in trade negotiations. To study this aspect, the project used such diverse measures as stock market reactions to the signing of trade agreements, tariff concessions, and the contents of preferential trade agreements (PTAs). One study directly tackled the argument that interdependence between countries induced by the globalization of production counteracts and undermines the effect of economic strength on bargaining power. We also tested how a country’s market size matters for the design of trade agreements. A key result of these studies is that this traditional measure of bargaining power continues to possess considerable explanatory power.

This research has led to a large number of outputs. We presented our research at all major conferences in the discipline and at many workshops. In terms of publications, so far we have produced 16 articles in peer-reviewed journals, several book chapters, and two PhD theses. The project also led to the publication of several major datasets.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

The project has made considerable progress beyond the state of the art. Specifically, we now have a better understanding of the relationship between GVCs and economic preferences. In general, we can expect economic actors involved in GVCs to prefer freer trade, but there are some exceptions to this. Our findings on individual trade attitudes also promise to be a breakthrough. For many years, the relevant literature has debated whether people are only concerned about their own economic well-being or about the economic well-being of other people in society. Our findings show that neither of these two approaches can fully explain people’s trade attitudes as their main concern is about an equitable distribution of the gains from trade.

Moreover, our research has shed new light on the trade attitudes of legislators. Having been able to link these attitudes to the economic competitiveness of electoral districts is a major piece in the causal chain linking lobbying to political outcomes. In the process of carrying out this research, we put together the most comprehensive dataset on subnational trade competitiveness currently available, covering countries on various continents and over more than 20 years. We also received responses from more than 1,000 legislators from democracies across the world that allow us to shed light on their considerations when making trade policy decisions.

Finally, our research allows for a better understanding of how bargaining power matters for trade policy outcomes. We show that GVCs affect countries’ bargaining power. Nevertheless, the explanatory power of countries’ economic size remains high for many of the outcomes considered in this project.

Approach to calculating the subnational trade competitiveness measure. Source: Huber et al. 2023.