Foreign Lobbies and US Trade Policy∗

In popular discussion much has been made recently of the susceptibility of government policies to lobbying by foreigners. The general presumption has also been that such interactions have a deleterious effect on the home economy. However, it can be argued that, in a trade policy context, bending policy in a direction that would suit foreigners may not in fact be harmful: If the policy outcome absent any lobbying by foreigners is characterized by welfare-reducing trade barriers, lobbying by foreigners for reductions in such barriers may, in fact, raise consumer surplus and possibly improve welfare. Using a new data set on foreign political activity in the US, this paper investigates this idea empirically. The underlying theoretical structure that motivates our estimating equations builds on the well known Grossman-Helpman model of trade policy determination (modified suitably to account for the role of foreign lobbies). Our analysis of the data suggests that foreign lobbying activity has significant impact on trade policy and in the predicted direction (of lowering trade barriers). JEL classification codes: D72, D78, F12, F13, and F14.