Narrowing the Channel

The politics of global supply chains

Executive Summary

This project examines the persistence of regulatory barriers to trade and the limits of international commercial cooperation. Whereas globalization has empowered large multinational corporations that oppose tariffs and other traditional forms of protection, these large global firms benefit from the competitive consequences of regulatory protection. Regulatory protection raises fixed costs that exclude small firms from the market and shift profits toward larger, more productive firms. While governments have relied upon multilateral institutions to lower tariffs, such tariff cooperation served the interests of the largest firms in ways that regulatory cooperation does not. This argument is supported by an original analysis of past trade negotiations, as well as major cases of regulatory protection in the US and the European Union. These cases reveal substantial support among large multinational firms for regulatory barriers. I further consider the implications of these competing interests in the design of the international trade agreements, finding that the norms that have governed commercial relations for the past two centuries are ill suited to address regulatory protectionism. This book breaks new ground by demonstrating that international economic integration can actually lead to less, rather than more, economic cooperation as firms compete for market position.