It seems obvious that agreements to cut tariffs will raise trade between their signatories. But recent studies show that some agreements widely considered to be landmarks in economic history had either a remarkably small impact on trade or none at all. Among those agreements are the Cobden-Chevalier Treaties and the long series of tariff accords concluded under the auspices of the GATT/WTO. Both sets of agreements cut import duties on many goods that applied to all trading partners entitled to most-favored-nation treatment, but neither increased aggregate trade between their members. This article examines the agreements concluded by the United States under the 1934 Reciprocal Trade Agreements Act (RTAA). The authors use an original data set that records changes in tariffs and US imports at the product-line level for each of the twenty-seven bilateral agreements. No comparable data exist either for the nineteenth-century trade network or for the postwar trade regime. The results show that the RTAA treaties failed to raise aggregate US imports from its treaty partners. They also show that these agreements did lead to a large and significant rise in US imports of specific products from specific countries. Because the same bargaining protocol that produced the RTAA agreements also governed the European treaty network and the GATT/WTO, the argument advanced in this article can also help to explain why neither treaty exerted a significant impact on aggregate trade between their signatories.

That the anarchic system generates incentives for states to balance each other's power is conventional wisdom in international relations. As such, the contemporary unipolar system is an anomaly. Observers explain its existence in several ways, including the benevolence of US hegemony and the constraints international institutions impose on the exercise of US power. None of them, however, explain what is perhaps the most puzzling outcome of the Soviet collapse: the decision of the United States to maintain its level of military spending. To explain its choice, we extend the seminal argument Waltz advanced long ago to a dynamic setting. Using a simple model, we show that the interest of the unipole in deterring a challenge to its power can induce it to continue to invest in guns rather than to shift its resources to the production of butter. This strategy can enable the incumbent unipole to pre-empt the balancing process that has long been thought to be central to state survival under anarchy.

The First World War is often cited as proof par excellence of the flaws in the liberal peace argument because the adversaries it engaged had been each other’s major pre-war trading partners. Although commonly assumed to have wreaked havoc on the trade of the states it engaged, the war’s impact on commerce has rarely been rigorously examined. Using an original dataset, this study shows that the Great War triggered substitution processes that reduced its trade-related costs. Although recourse to second-best alternatives always induces efficiency losses, the costs of adjustment were small relative to the other costs that states incurred during the war. The analysis shows that the Great War is not the egregious exception to the theory that conventional wisdom has long assumed it to be. At the same time, it makes clear that the deterrent power of trade varies inversely with belligerents’ ability to access the markets of alternative trading partners.

Recent studies cast doubt on the value added of international trade agreements and institutions. Using a new data set that consists of about 35,000 observations on the trade of fifty-four nations between 1919 and 1938, we examine whether this skepticism also applies to the infamous interwar trade blocs. Traditional historical accounts attribute to them a large drop in international trade and a rise in the political tensions that would later erupt in World War II. In this study, we show that no bloc raised trade among its members as a whole or decreased trade between members and nonmembers. However, our findings are not wholly consistent with the skepticism recent studies express. We argue that conflicts of interest among the great powers encouraged the emergence of the bloc system and also gave rise to intrabloc trade shifts consistent with the political interests of their great-power hubs. The political-military alliances these conflicts created also reduced trade between their signatories, and we argue more generally that the causal chain runs from politics to trade. As a result, measuring only the effect of agreements and institutions on aggregate trade between their members can generate inaccurate estimates of their value added.

This paper argues that testing the empirical implications of existing theories about institutions yields rich insights into the postwar trade regime. Market-failure theory predicts that the GATT/WTO will exert its strongest impact on trade between its largest member states. A theory based on security externalities implies that a sizeable expansion of trade will also occur between a subset of the contracting parties that alliance ties link. An analysis of the data shows that the evidence is consistent with both theories, making clear the value added of taking explicitly into account the economics and politics that motivated the establishment of the postwar regime and that governed its subsequent operation.

Using data on bilateral trade flows from both before and after World War II, this article examines the impact of the General Agreement on Tariffs and Trade on trade between its members and on the system of interwar trade blocs. It shows that the distribution of the benefits produced by the GATT was much more highly skewed than conventional wisdom assumes. The article also shows that the gold, Commonwealth, Reichsmark, and exchange-control blocs exerted positive and significant effects on trade after 1945. The authors attribute these effects to the bargaining protocol that governed successive rounds of GATT negotiations, the signature element of the postwar trade regime.

The “new” trade theory and standard trade theory make different predictions about the composition and distribution of trade flows. Empirical evidence suggests that an increasing share of international trade consists of differentiated products, a consequence of increasing returns to scale. Nonetheless, the existing political science literature typically assumes that the conditions of standard theory hold. As such, the literature ignores the dynamic-inconsistency problem that imperfect markets can create. In doing so, it also ignores the fact that imperfect markets can shift the political prerequisites of open international markets. In this article we examine these shifts. We argue that alliances can support an optimal level of trade when scale economies rather than differences in relative factor endowments motivate it. Our empirical results support this argument, indicating that alliances exert a stronger influence on trade in goods produced under conditions of increasing rather than constant returns to scale.Earlier versions of this article were presented at the 2002 Annual Meeting of the American Political Science Association, Boston; the 2002 Annual Convention of the International Studies Association, New Orleans; and seminars at the University of Chicago (PIPES), the University of Colorado, Cornell University, Dartmouth College, New York University, the University of Pennsylvania, and Yale University. For helpful comments and suggestions, we are grateful to participants in these seminars and to Regina Baker, Bruce Bueno de Mesquita, William Clark, Benjamin Cohen, Christina Davis, Eric Fisher, Avery Goldstein, Stephen Kobrin, Lisa Martin, Patrick McDonald, Helen Milner, Robert Powell, Dan Reiter, Anne Sartori, Branislav Slantchev, and Beth Yarbrough. We are also grateful to Regina Baker and Patrick McDonald for research assistance.

This essay examines the effect of power asymmetries and imperfect markets on US trade policy, two issues often neglected in the conventional literature. We suggest that when the distribution of power is skewed and markets do not conform to the world of standard trade theory, open international markets will not exist unless the disproportionately most powerful state can make a credible commitment to free trade. We suggest that these two conditions characterized the post-World War II trade environment and partially explain why the United States encouraged the formation of the postwar international trade regime. To demonstrate this argument, we examine the voting rules, dispute settlement procedures, and regional trading arrangements that characterized the three postwar trade organizations: the stillborn International Trade Organization, the General Agreement on Tariffs and Trade, and the World Trade Organization. We argue that the rules of these institutions empowered their member states to punish any US attempts to ‘cheat’. In so doing, it made free trade their welfare-maximizing strategy choice.

This article examines the effects of party politics and presidential election cycles on U.S. recourse to force abroad. I analyze a game-theoretic model to generate predictions about these effects. In the unique time-consistent equilibrium outcome of the one-shot game, policy varies across political parties. In a subgame–perfect equilibrium outcome of the repeated game, the use of force is invariant to the partisan composition of government. In neither case does policy respond to the electoral cycle.

An empirical analysis supports the predictions of the repeated game. Between 1870 and 1992, U.S. recourse to force abroad responds neither to partisan politics nor to the domestic political calendar. It responds only to changes in U.S. power status and to the advent of general wars.

A growing literature in international relations concludes that democratic states pursue distinctive foreign policies. Specifically, democracies do not engage each other in war and only rarely engage each other in serious disputes short of war. Scholars have offered three basic explanations to support these findings. Each of the three invokes a different explanatory variable: norms, checks and balances, and trade. None of the three, however, provides a convincing explanation of the peace that is said to prevail between democratic polities: the distinction between norms and interests is unclear; substitutes for checks and balances exists in nondemocracies; and trade can deter conflict only under restrictive conditions.

Recent literature attributes the relative scarcity of open international markets to the prisoner's dilemma structure of state preferences with respect to trade. We argue that the prisoner's dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system, namely, their security externalities. We consider these external effects explicitly. Doing so leads us to two conclusions: (1) free trade is more likely within, rather than across, political-military alliances; and (2) alliances are more likely to evolve into free-trade coalitions if they are embedded in bipolar systems than in multipolar systems. Using data drawn from an 80-year period beginning in 1905, we test these hypotheses. The results of the analysis make it clear that alliances do have a direct, statistically significant, and large impact on bilateral trade flows and that this relationship is stronger in bipolar, rather than in multipolar, systems.

Recent literature typically attributes the relative scarcity of open international markets to the prisoner's dilemma structure of state preferences with respect to trade. I argue that the prisoner's dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system: security externalities. Explicit consideration of these effects suggests that a bipolar international political system has an advantage relative to its multipolar counterpart with respect to the opening of markets among states. Less credible exit threats and stronger incentives to engage in altruism within its alliances explain the advantage of a two-power system.

In defining international free trade as a public good, “hegemonic stability theory” posited early in the 1970s that its reliable supply depended upon a distribution of international power analogous to that within a privileged group. More recently, however, critics have challenged three assumptions fundamental to hegemonic theory: its premises of free trade, public goods, and privileged groups. They have concluded that hegemony is not necessary for, and indeed may be antithetical to, a stable world economy based on market exchange.

The author argues that the critics overstate their case. The assumptions they attack allow hegemonic theory to represent analytically several critically important barriers to free trade among states. Among these are the existence of strategic interdependence among the actors and the prevalence of informational asymmetries. The most significant flaw in hegemonic theory is its neglect of the essence of the domain to which it applies: the politics of inter-state trade in an anarchic world.

Basic analytic premises are an issue in contemporary debates about the U.S. foreign economic policy process. In dispute are the power structures alleged to govern the formation of American trade and international monetary policy. Thus, the literature supports both of these assumptions: the distribution of power is skewed towards private actors in the issue-area generally; the distribution of power varies according to issue-area. Within the camp of issue-specific power structures, as I shall discuss in more detail, support can be found for almost any assumption about the distribution of power prevailing, in the language of current debate, between “state and society.”

In the mid-1950s, the Eisenhower administration proposed that the U.S. government subsidize the expansion of American corporate interests abroad. In 1954 and again in 1955, the Republican administration recommended that Congress ease the provisions of the Internal Revenue Code applicable to income earned abroad in order to encourage American multinational corporations (MNCs) to increase their investments overseas. The MNCs and exporters opposed specific components of the administration's tax package, however; Congress therefore refused to endorse it. By the end of its tenure in office, the administration itself retreated from its attempts to subsidize private capital exports and began to advocate a crackdown on tax abuse by American multinational firms.

For eighteen months between 1978 and 1980, the International Monetary Fund and IMF members attempted to reform the international monetary system by establishing a substitution account. Designed to enhance the stability of the monetary system, the proposed substitution account would have accepted dollar deposits from foreign central banks, in return issuing certificates denominated in special drawing rights. The collapse of negotiations about the account in early 1980 confirms the hypothesis of hegemonic stability theorists that the distribution of systemic costs is problematic in the absence of a hegemonic power. The case thereby qualifies recent assertions that a small group of nations can supply stability to the international economy. However, two factors outside the realm of hegemonic theory also helped produce the outcome of the negotiations: the division of power within the United States between Congress and the Executive, and changes in international market conditions during 1979 and early 1980.