Trade adjustment, political pressure, and trade protection patterns

Abstract

This paper introduces trade adjustment considerations as active determinants of trade policy. Using novel U.S. data sets, I show that, despite their small monetary value, trade-induced unemployment and trade-adjustment costs can incite an incumbent politician to grant protection to an unorganized industry, even in the presence of political pressure by organized sectors. This finding complements the theoretical predictions from Grossman and Helpman (American Economic Review, 84, 1994, 833-50) who argue that the government should protect organized industries but should subsidize imports in unorganized sectors. © 2012 Western Economic Association International.