Foreign Policy or Industrial Policy? The Design of Trade Bureaucracy

• In Event: Political Economy of Economic Statecraft

Abstract

Foreign trade is at the nexus of commerce and diplomacy. This presents a challenge for policymakers. Managing trade as commercial policy will risk capture as an instrument of industrial policy. Alternatively, handling trade as part of the foreign policy portfolio risks cooptation as a tool of economic statecraft. Confronting this dilemma, the United States Congress established the USTR as an independent agency focused exclusively on trade policy. Trade policy in most other countries falls under the jurisdiction of either the foreign ministry or the commerce ministry – what explains the choice to center trade policy closer to industry or foreign policy? We argue that the structure of trade policy reveals underlying government priorities over foreign policy versus industrial policy. Governments with a higher demand for linking trade and foreign policy are more likely to unite them under the same ministry. In contrast, governments with an active industrial policy will locate trade in the commerce ministry. The creation of a separate agency like the USTR reflects divided preferences that may arise in a presidential system. We analyze an original dataset of comparative trade policies for all WTO countries over the period 1995-2018 coded from WTO Trade Policy Reviews. Using measures of diplomatic engagement, sectoral policies, and form of government, we test what conditions influence the structure of trade policy. Case studies explore decision points in the design of several unusual cases -- the creation of USTR, redesign of trade portfolio in Canada and Korea, and dual representation balance in Japan.

Authors

• Christina Davis, Harvard University

• Yon Soo Park, Harvard University

• Diana Stanescu, Princeton University