Coercion, resistance, and free trade: A two-phased game of the United States Section 301 trade policy

The US abandoned the principle of reciprocity based upon multilateral trade negotiations when it reinforced Section 301 of the 1974 Trade Act after 1985. The US instead commenced a systematic reliance on its power for the resolution of trade issues. The hegemonic power forces major trading states to adopt "free and fair" trade policy in bilateral economic negotiations. The initiation of Section 301 became the most powerful method to settle foreign trade disputes between the US and its partners. Power alone, however, cannot effect international cooperation of trade policy. This study explains the process of Section 301 through the framework of a two-phased game that consists of agreement and implementation. International cooperation is the outcome of the interaction between international distribution of power and domestic politics. When the gap of relative power between the US and its partner has been large, the disadvantaged partner would have more incentives to deviate from the agreement. Economic damage and the political influence of targeted industries determine the intensity of domestic resistance. The variable of factor specificity measures the magnitude of damage to a targeted industry. The type of political institutions has an important bearing on the political influence of the industry. The amount of policy-induced rents vested in an industry is another indicator of industrial power, independent of its size. The resistance of powerful industries may be reduced by the compensation capacity of states. A state's compensation capacity plays a central role in international cooperation, by reconciling the clash of external pressure and domestic resistance. When the state lacks such capacity, domestic resistance will force the agreements to be delayed or abandoned. The historical development of welfare institutions determines the capacity of states to respond to social demands for compensation. The lack of state capacity to mitigate international economic changes can seriously hamper the sustainability of the current free trade regime.