Strategic Trade and Investment Policies: Implications for the Study of International Political Economy

B USINESS gurus point out that successful firms often carefully strategise about what to sell, where to sell, how to sell, and how and where to manufacture their goods and services. Suppose a country, drawing inspiration from such firms, were to formulate a set of economic policies to become globally competitive in leading economic sectors. How specific or encompassing would such policies be and what might be the justifications for them? Even though the theory and practicality of such policies — the strategic trade and industrial policies (STIPs) — is contested, they retain their appeal for politicians and policymakers. In this paper we discuss how and why STIPs have created a new agenda for the study of international political economy. State intervention to directly guide industrial activity is called industrial policy and to guide foreign trade is called trade policy. Industrial policies differ from macroeconomic policies in that they target only a subset of the economy. Whereas macroeconomic policies (such as tax rates, level of deficit spending and interest-rate policies) generally do not discriminate among types of firms or industries, industrial policies (such as R&D subsidies, tax subsidies, preferential loans and credit allocations) are targeted at specific firms or industries.