Strategic Trade and Competition Policies to Assist Distressed Industries

A country's unilateral incentive to use strategic trade policies typically conflicts with multilateral interests regarding such intervention. The author demonstrates that domestic and world interests can coincide if intervention is used to deter exit from a distressed domestic industry. In particular, a policy of government-endorsed collusion between domestic firms can improve domestic welfare while avoiding the usual beggar-thy-neighbor effects associated with the use of trade policies; it also may offer a more incentive-compatible means of assisting distressed domestic firms, since a unilateral incentive to intervene exists only where the viability of the firms is threatened.