Strategic trade policy reconsidered: National rivalry vs free trade vs international cooperation

In the early 80s economic theorists discovered strategic trade policy and thereby appeared to legitimise state support for domestic oligopolists threatened by international rivals. However, these self-same theorists had been long disposed towards free trade and thus found their new position uncomfortable. They soon began to back away and the argument has since gone full circle; the return of free trade as the favoured policy has been the outcome of theoretical, empirical and political analysis. We share the concerns of earlier literature but dispute the conclusion favouring free trade. We see the 'free' in free trade as freedom at a cost; it refers to the freedom of strategic decision-makers in transnational corporations to further their own objectives despite the resistance of others. It is therefore suggested that a policy favouring such trade is most appropriately labelled 'strategic trade' rather than 'free trade'! More importantly than labelling, however, our discussion suggests the desirability of public policy initiatives aimed at democratising strategic decisions concerning international trade. We define such initiatives as 'trade strategies'. It is recognised that these might include certain barriers to trade. Moreover, rather than supporting national champions and unlike mainstream strategic trade theory, our argument points to the potential provided by networks of smaller firms. Also unlike earlier strategic trade theory, we emphasise the evolution of a process where conflicts are recognised and addressed in a spirit of international cooperation