Anti-Trade Despite Economic Self-Interest

• In Event: Analyzing the Micro-foundations of the Anti-Trade Backlash

Abstract

Why are some voters trade protectionist when, according to standard trade models, higher tariffs harm their own economic interests? Recent studies hypothesize non-materialistic priorities like nationalism or altruism, or cognitive biases like framing effects to be primary determinants of attitude toward trade policy. However, these factors fail as compatible alternatives to standard trade theory due to their poor ex ante observability. This paper offers a theory of trade policy preferences based on ex ante observable economic quantities only, examining how individuals would vote in a majority-rule trade referendum. The model finds that uncertainty about income effects of trade liberalization alone completely “flips'' the preferences of the median voter in a way counter to Heckscher-Ohlin predictions. Heterogeneous effects of such uncertainty can be explained by difference in individual earnings. Contrary to recent claims, the model finds that other-regarding tendencies or cognitive biases influence economic policy preferences only to the extent they inform beliefs about future shocks to economic self-interest.

Author

• In Young Park, Princeton University