The Scramble for Semiconductors: (Mis)managing Trade in High Technology ; Review

The 1980s and early 1990s have witnessed an extraordinary return of mercantilist trade policies. Backed by game-theoretic models, economists have started to argue that trade policy can take on a strategic role in a situation of imperfect competition and scale economies (Brander and Spencer 1985). Given that governments usually possess considerable policy discretion in this domain, they are in a unique position to adopt unilateral measures that effectively lower barriers for domestic firms to enter particular industries. Given appropriate demand and supply elasticities, such interventionist measures might help firms develop credible strategies for obtaining a larger share of profits. Strategic trade theorists have extended this argument and claimed that helping imperfectly competitive industries can also serve the country as a whole. From their perspective, government activities allow a state to capture rents or excess profits that other nations would gather in the absence of the protectionist policy. Indeed, optimal tariffs may be greater than zero even if other states retaliate and punish the free-riding country