Buying and Selling: How to Play the Game
International trade policy is more complex than scholars once thought.
In her research, Renee Bowen (C’08) studies multi-agent interactions like a game of monopoly or chess – through the lens of players, actions, and payoffs. Bowen, the Dean’s Professor of International Business and Global Affairs, is jointly appointed in the McDonough School of Business and Walsh School of Foreign Service. Her research focuses on political economy, microeconomic theory, and international trade.
Bowen uses game theory to examine the design of domestic political institutions and how they interact with international trade agreements. Through this framework, players represent economic actors (two countries), actions are the behavior being studied (countries setting trade policies), and prizes are the payoffs to each player contingent on every possible combination of actions. Unlike a real game, the research model is less concerned about who wins the game and more about the institutional rules that allow both players to gain higher payoffs.
Governments are complex and vary along a spectrum from autocracy to democracy. Ultimately, governments consist of individuals playing a gigantic game with their own personal payoffs. Elected officials are “selling” trade policy in exchange for votes or other personal gain. In turn, voters buy trade policy with their vote. Various special interest groups and companies purchase these policies by making campaign contributions. Similarly, lobby groups and think tanks pay for the policy with the information they provide. There is an enormous, complex market for trade policy in any given country and this interacts with a different, complex market in another country. Research in this area has also shown economic motivations are just one determinant of payoffs in the trade policy game – national security, food security, sovereignty, fairness, and other issues play a role, too.
When it comes to international trade policy, game theory shows that although free trade is universally better, countries playing the trade policy game will always choose protectionism if they are not sufficiently patient. With renewed conversations about tariffs, Bowen discusses the various factors that influence international trade policy in the modern age.
BUYING: International Trade Policy is a Complex Market Involving More than Governments
Governments are complex and vary along a spectrum from autocracy to democracy. Ultimately, governments consist of individuals playing a gigantic game with their own personal payoffs. Elected officials are “selling” trade policy in exchange for votes or other personal gain. In turn, voters buy trade policy with their vote. Various special interest groups and companies purchase these policies by making campaign contributions. Similarly, lobby groups and think tanks pay for the policy with the information they provide. There is an enormous, complex market for trade policy in any given country and this interacts with a different, complex market in another country. Research in this area has also shown economic motivations are just one determinant of payoffs in the trade policy game — national security, food security, sovereignty, fairness, and other issues play a role, too.
SELLING: Governments Are Unitary Actors Choosing Trade Policy on Behalf of Their Country
Most economists agree that, from an economic perspective, reciprocal free trade is better than protectionism. Prior to the flurry of trade policy action over the last decade, economists believed the trade policy story was finished. The General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) were in place for 75 years, which appeared to be working well. But there was a complex game happening in the domestic politics of each country that determined the fate of free trade. Scholars have often focused on governments as unitary actors that choose trade policy on behalf of their country. In this sense, the punishment that makes free trade agreements work is simple – threaten to impose tariffs if the agreement is violated. Game theory shows that when players are sufficiently patient, they are able to sustain the best possible outcome in the long-run with an appropriate system of punishments, known as “The Folk Theorem.” But recent experiences have shown that there is still much to learn about the design of trade agreements to help better sustain them.
This story was originally featured in the Georgetown Business Spring 2025 Magazine. Download the Georgetown Business Audio app to listen to the stories and access other bonus content.