| Abstract: | Extrapolating from some simple game-theoretic models, this paper suggests that invoking Section 301 will tend to shift the terms of agreement in the US's favor. This shift will be larger (a) the greater the harm to the targeted country from having its access to the US market limited; (b) the smaller the targeted country's ability to harm the US in retaliation; (c) the smaller the costs within the targeted country of complying with the US demands; and (d) the greater the benefit to the US – in the US negotiators' perception – from the demanded liberalization. But these determinants of the success of a Section 301 action do not identify the areas where the social gains from freer trade are largest. Thus there is a tendency to direct Section 301 actions at the wrong targets. Section 301 increases bargaining frictions: attempts to exploit the bargaining power that comes from either private information or commitments can lead to costly delays to agreement or even the possibility of a complete breakdown in the negotiations. And the use of retaliatory strategies can upset an existing global equilibrium and lead to counter-retaliation. |
