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By analysing interlocking cross-ownership, this work reconsiders the inefficiency of activist governments that set subsidies for their exporters (Brander and Spencer, J Int Econ 18:83–100). Making use of a third-market Cournot duopoly model, we show that the implementation of strategic trade policy in the form of a tax (subsidy) when goods are differentiated (complements) is Pareto-superior to free trade within precise ranges of firms' cross-ownership, richly depending on the degree of product competition. These results challenge the conventional ones in which public intervention (1) is always the provision of a subsidy and (2) always leads to a Paretoinferior (resp. Pareto-superior) equilibrium when products are substitutes (resp. complements).

In a third-country market model in which two export countries adopt environmental policies (taxes and subsidies), this article analyses how an abatement (“green”) subsidy can become a potential strategic trade policy tool. When governments set the optimal policy considering their local environmental damages, a rich set of equilibria arises. In contrast to the standard result, it is shown that subsidising pollution abatement can 1) emerge as the unique Pareto-efficient Nash equilibrium of the policy game, 2) be the only feasible environmental policy when environmental awareness is low, irrespective of the efficiency of the cleaning technology, and 3) emerge as the unique Pareto-inefficient Nash equilibrium of the policy game at the end of the ecological transition. The article also tackles some dynamic issues that the policy game implies.

ABSTRACT This paper examines the semiconductor’s industry growing importance as a strategic technology in the modern industrial system and in contemporary warfare. It also analyzes this industry’s evolution in China and the Chinese semiconductor industrial policy over the last years. We review the Chinese interpretation of the ‘revolution in military affairs’ and China’s perception of its backwardness as well as the possibilities of catch-up and evolution in the most sophisticated segments of this productive chain through domestic firms and indigenous innovation. RESUMO Esse artigo examina a crescente importância da indústria de semicondutores como uma tecnologia estratégica no moderno sistema industrial e na guerra contemporânea, além de analisar a evolução desta indústria na China, bem como a política industrial chinesa em semicondutores seguida nos últimos anos. Revisa-se a interpretação chinesa da “revolução nos assuntos militares” e a percepção de seu atraso tecnológico e possibilidades de catch-up e de evolução nos segmentos mais sofisticados desta cadeia produtiva através de firmas domésticas e tecnologia autóctone.

In this paper we discuss the endogenous formation of climate coalitions in an issue-linkage regime. In particular, we propose a preferential free trade agreement on which a climate coalition should be built. The basic idea is that the gains of free trade can provide strong incentives for countries to join the coalition. As a framework, a multi-stage strategic trade model is employed in which each country may set an emission cap being effective on a permit market. In addition, a discriminatory import tariff may be imposed on dirty goods. However, at the heart of our approach is a preferential free trade arrangement among the members of a climate coalition leading to a favourable shift in the terms of trade. As a main result, trade liberalisation is found as an institution highly effective in building climate coalitions. In particular, the parametrical simulation of the model shows that participation in joint emission reduction is higher, consumption patterns are more environmentally friendly, and coalitional welfare is much more improved than in case of a single-issue environmental agreement.

We examine relations between strategic environmental policy, international R&D cartels and research joint ventures (RJVs), using a third-country model with Cournot duopoly. We indicate that forming an R&D/RJV cartel reduces governments' incentives to extract rent from consumers in the third country. Contrary to conventional wisdom, we find that social welfare under R&D cartels with full information sharing, i.e., RJV cartels, cannot surpass that under R&D/RJV competition, whereas forming an R&D/RJV cartel works well for environmental investment. Among the policy implications, we show that governments can maximize global welfare by collectively determining whether to allow R&D/RJV cartels.

We examine how strategic trade affects expected returns in a large economy. In our model, both a monopolist (strategic) informed trader and uninformed traders consider the impact of their demands on prices. In contrast to settings with price-taking traders, private information never eliminates a priced risk, and can lead to higher risk premiums. Also unlike settings with price-taking informed traders, risk premiums decrease in response to an increase in liquidity-motivated trades in diversified portfolios. These differing effects arise because a privately informed strategic trader conceals her trades by taking small positions relative to the magnitude of noise trades. Although prices partially reveal her information and reduce uncertainty, a concomitant decrease in her risk absorption dominates and leads to higher risk premiums. Similar to settings with price-taking traders, private information affects expected returns only via factor loadings and risk premiums on existing payoff risks—it introduces no new priced risks, and factor loadings (betas) explain all cross-sectional differences in expected returns.

In view of the theme of \"globalization,\" the volume will pay attention to how such issues as the Covid-19 pandemic impacts and challenges globalization, especially how it affects China, the United States, and their mutual relations.

This paper examines how a politically biased strategic export subsidy influences social welfare when an importing country imposes countervailing duties on imported goods if the subsidy is verified. Based on a simple model that integrates the political contribution provided by exporting firms and the verifiability problem of an export subsidy for the upstream firms within a vertically fragmented production process, this paper demonstrates that politically biased strategic export policies can deteriorate social welfare. Moreover, when it is more difficult to identify hidden government subsidies, welfare loss due to politically biased subsidy is increased. Interestingly, an importing country is not motivated to fully countervail the politically biased export subsidies when it is concerned about social welfare, including consumer surplus. These results provide an answer on why the conflicts over hidden subsidies are increasing with deepening fragmentation of exporting firms’ production processes. In addition, the results imply that it is imperative to make further efforts to enhance the verifiability of the hidden subsidies in order to reduce the welfare deterioration caused by the politically biased strategic trade policies.

This paper analyzes the differences between strategic trade and the competitionpolicies (in the form of inward Foreign Direct Investment) to regulate a unionizedmonopoly in the domestic country. With decentralized negotiations both policiesreduce labour and product market distortions. However the fixed cost for the foreignentrant and the degree of product differentiation determine which policy should beimplemented to maximize national welfare, and the cases in which the domestic governmentcan intervene, to achieve a Pareto-improvement.

Clean technologies, such as solar panels and wind turbines, help to curb global emissions, but they require dirty inputs for their production—i.e., mining rare earth elements (REEs) pollutes local environments. REEs are also the object of rent-shifting strategic trade policies, as highlighted by a recent WTO ruling against China’s quotas and tariffs on exports of REEs. We construct a three-country trade model with an environmental damage function, in order to examine the effects of three policies with different implications for the equilibrium quantities of dirty inputs and clean technologies: a downstream subsidy, an upstream export tariff, and an upstream pollution tax. We relate the welfare implications of the policies to the parameters of the damage function and to the number of downstream competitors. The effects of a unilateral policy switch from an export tariff to a domestic pollution tax, as suggested by China’s reaction to the WTO challenge, are also examined.