Geopolitics and the Redesign of Trade Agreements: Rethinking Subsidy and Tariff Rules in an Era

초록

This paper analyzes how heightened geopolitical rivalry alters the optimal design of international trade agreements, particularly with respect to domestic subsidies and import tariffs. Building on the frameworks of Mattoo, Ruta, and Staiger (2024) and Lee (2016), we develop a theoretical model that incorporates both relative-power-driven government preferences and private information about legitimate domestic policy needs. We demonstrate that the rise of geopolitical competition undermines the traditional economic rationale for trade cooperation based solely on mutual welfare gains. Instead, countries may prioritize relative advantages and strategic sector dominance. In such settings, existing WTO norms—especially reciprocity and non-discrimination—become increasingly misaligned with the strategic incentives of states. Our findings highlight the need for deep institutional reforms, including the conditional relaxation of subsidy restrictions and recalibration of the MFN principle, to ensure continued cooperation in the global trading system.

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