Behind The Trade Policy

Since our reform and opening up, the development of Chinese foreign trade has made unprecedented achievements. However the rapid development of foreign trade is also subject to suspicion from other countries. Especially after the accession to WTO, there are more frequent trade friction between China and other countries of Europe and America. The focus of trade friction concentrated on tariff protection. Traditional free trade theory represented by Adam Smith and Ricardo thinks that the best trade policy should be complete freedom of trade. Especially after the twenty-first century, the trend of economic globalization becomes more and more obvious. This seems to indicate that free-trade policies should become the mainstream. However, it is undeniable that every country seems to deliberately create barriers, including China. Under the constraints of WTO, every country is gradually reducing tariffs. But the barriers have not been eliminated, and continue to exist in the form of non-tariff barriers, which become more severe and more elusive. As a member of WTO, China is not only a victim of trade protection, but also the perpetrators of trade protection. Why does China play such a role? How does Chinese trade policies form? This paper will mainly study these issues.The arrival of political economy of trade policy provides a new direction for the study of the formation mechanism of trade policy. Tariff is determined in the political market. Behind the trade policy, there hides various games between different interest groups. Endogenous trade policy on foreign study has made some achievements, which deserve our reference. Protection sale model of Grossman and Hellmann makes greatest impacts and its two-stage analysis used by this model is widely adopted by many scholars and becomes the main model of endogenous trade policy at the present stage. China has just started in this field and there are not suitable trade policy model for China. Correct understanding of the formation mechanisms for Chinese trade policy has so great significance to the development of foreign trade that it seems very necessary to study the trade policy. Through the long study of contest theory, we find that lobbying game between Chinese major interest groups can be considered as a public goods contest. Based on endogenous trade policy model, this paper includes contest theory into the analysis framework of two-stage competition model of lobbying and proves the existence of a unique sub-game perfect equilibrium,whether the members of interest group are cooperative lobbying or not. And in the equilibrium.the probability of high tariffs being imposed is closely related to the lobbying expenditures from interest groups.The government gives different weights to lobbying benefits and social welfare in the equilibrium and forms its objective function, works out the most appropriate trade policy in the end. However, due to the great difference of political system between China and western countries, interest groups of China is showing the characteristics of diversity, which is different from the west. Western model of endogenous trade policy is not applicable for China. Contest theory makes us view the trade policy formation mechanism from a new angle and put aside the political impact. We can consider the lobbying game of interest groups as a public goods contest, which will generalize our study and become more suitable for China. In-depth study will provide great help for Chinese trade policies.