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Protection and Retaliation: Changing the "Rules of the Game"

  • Economics
  • Mathematics


Protection and Retaliation: Changing the 'Rules of the Game' CATHERINE L. MANN Federal Reserve Board Protection and Retaliation: Changing the 'Rules of the Game' EVEN A QUICK PERUSAL of the daily paper suggests the controversial nature of international trade in the United States today. Canada and the United States are skirmishing over stumpage fees for lumber and support prices for corn. The European Community and the United States, having recently reached a truce in their grains and luxury edibles disagreement, are now arguing about airplanes and oilseeds. The United States and Japan are circling in round two of their semiconductor match. Germany and Switzerland refuse to restrain voluntarily their exports of machine tools to the United States. U.S. soybean producers demand a counter- vailing duty on Argentine soybean products because, they charge, Argentina's differential export tax encourages soybean production. Do these trade problems have a common foundation? Do the specific disputes threaten to escalate into broader-based conflicts involving more products or more countries? Can the historical record shed light on the causes and consequences of such trade arguments? A major lesson of the past is that periods of macroeconomic stress in the United States have tended to precipitate changes in the conduct and implementation of U.S. trade policy. Those changes can then lead to escalating trade tensions and perhaps retaliation by the United States or by its trading partners. The focus in this paper is on changes in the conduct of U.S. policy primarily because the consequences of a change This paper represents the views of the author and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or other members of its staff. Many thanks to Eric Fisher and Charles Thomas, although they should not be held responsible for my eclectic approach to game theory. Thanks also to Ralph Tryon, Dale Henderson, Ellen Meade, C

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