Conflict and cooperation in international trade: Post Keynesian perspectives

What the paper says

The revival of economic nationalism poses a challenge to neoclassical orthodoxy, which claims that liberalized international trade is (subject to a few recognized and important exceptions) inherently cooperative and mutually beneficial. Post Keynesian open-economy models demonstrate that international trade relations can be conflictive under certain conditions. In the short run, changes in either cost- or quality-competitiveness can shift output, growth, and employment from some countries to others. In the medium run, positive feedbacks from growth of exports to growth of labor productivity create self-reinforcing gains in external competitiveness for some countries that may come at the expense of slower growth for others. In the long run, changes in the real exchange rate or terms of trade can favor some countries’ growth at the expense of others’. The Post Keynesian approach also implies that coordinated fiscal expansions can mitigate these conflicts and foster more cooperative outcomes, while industrial policies are generally superior to protectionism.