The Case for Strategic Trade Policy - What's Left?

The paper offers a selective review of the literature on strategic trade policy. The main focus is on empirical applications and on attempts to extend the characterization of markets and to make the characterization of economic policy and its capabilities more realistic. More than ten years of intensive discussion have not been able eliminated the case for strategic trade policy. Recent work has shown the policy recommendations to be much more robust than previously thought. Since strategic trade policy creates collective dilemma situations, probably the most important conclusion is an increase in theoretical support for international institutions which provide retaliation mechanisms to make strategic trade policy unattractive.