Suppose that an opportunity arises for two countries to negotiate a free-trade agreement (FTA). Will an FTA between these countries be politically viable? And if so, what form will it take? We address these questions using a political-economy framework that emphasizes the interaction between industry special-interest groups and an incumbent government. We describe the economic conditions necessary for an FTA to be an equilibrium outcome, both for the case when the agreement must cover all bilateral trade and for the case when a few politically sensitive sectors can be excluded from the agreement.

When governments meet in the international arena, their actions reflect the political situations at home. Previous studies of trade relations have focused on governments that are immune from political pressures and that act as benevolent servants of the public interest. Here we introduce domestic politics into the analysis of international economic relations. We study the interactions between national leaders who are concerned with both providing a high standard of living to the general electorate and collecting campaign contributions from special-interest groups. Our analysis sheds light on the determinants of the structure of protection in noncooperative and cooperative policy equilibria.

Whether governments clash in trade disputes or negotiate over trade agreements, their actions in the international arena reflect political conditions back home. Previous studies of cooperative and noncooperative trade relations have focused on governments that are immune from political pressures and that act as benevolent servants of the public interest. Here we take a first step toward introducing domestic politics into the analysis of international economic relations. We study the interactions between national leaders who are concerned both with providing a high standard of living to the general electorate and collecting campaign contributions from special interest groups. The analysis reveals the determinants of the structure of protection in a noncooperative trade war and in a cooperative trade agreement.