Trade Preferences and Relative Gains

Conventional wisdom in international political economy suggests that individual trade preferences are predominantly guided by economic self-interest. The Heckscher–Ohlin model shows that free trade would increase (or decrease) the real earnings of owners of factors of production that are abundant (or scarce) relative to foreign countries.Footnote ⁹ The model predicts that trade preferences are shaped by individual factor endowments, and several studies have provided evidence for it.Footnote ¹⁰ The Ricardo–Viner model, on the other hand, predicts that people in export-oriented (or import-oriented) sectors will support (or oppose) free trade.Footnote ¹¹ Studies providing empirical support include Beaulieu, Irwin, and Kaempfer and Marks,Footnote ¹² and the model has also received joint support along with the Heckscher–Ohlin model.Footnote ¹³ At the same time, however, a sizable body of research also suggests trade preferences are not merely guided by the individual's direct material self-interest.Footnote ¹⁴

In particular, mainstream neorealist scholarship would predict that trade preferences are affected by relative-gains considerations. This is because “the general insecurity of international anarchy leads states to worry not simply about how well they fare themselves (absolute gains) but about how well they fare compared to other states (relative gains).”Footnote ¹⁵ As the relative power and influence of a country depend on relative gains rather than absolute gains, “relative gain is more important than absolute gain.”Footnote ¹⁶ Given states’ pursuit of relative gains, international cooperation can become a zero-sum, or near-zero-sum, game.Footnote ¹⁷

Relative-gains considerations mean that “states compare their absolute outcome to the absolute outcomes of other states.”Footnote ¹⁸ It follows that a win-win trade policy where domestic gains outweigh the trade partner's gains would be preferred to a win-win policy where foreign gains outweigh domestic gains. It also follows that a win-lose trade policy, where domestic gains are derived at the expense of the trade partner, would be even better from the relative-gains perspective, even if the domestic absolute gains remain the same.Footnote ¹⁹ Such relative-gains calculations can impede international cooperation, as several models have shown.Footnote ²⁰

Yet, relative gains do not always impede international trade.Footnote ²¹ For example, relative-gains concerns in the economic realm can be less salient than those in the security realm.Footnote ²² A state may also favor a policy where foreign gains outweigh domestic gains if the absolute gains it derives from the policy would create relative gains vis-à-vis other foreign states.Footnote ²³ Even if states have a natural tendency to compete, international economic cooperation may still be in their strategic interests.Footnote ²⁴ However, if a trade policy is likely to affect the future interactions between home and foreign states, relative-gains concerns will kick in.Footnote ²⁵ In particular, if people believe that relative economic advantages can be translated into relative military advantages, or that the trade partner is a potential security threat, then relative gains in trade are likely to be important.Footnote ²⁶ Theorizing relative gains as security externalities, Gowa and Mansfield found that free trade took place more frequently within, but not across, military alliances, suggesting that states take relative gains into consideration on the issue of trade.Footnote ²⁷ Mastanduno argued that America's shift to a more protectionist trade policy in the late 1980s showed “clear signs of relative gains-seeking behavior … in the US policy process.”Footnote ²⁸

Relative-gains concerns can affect trade preferences at the individual level through sociotropic considerations. A large body of research has established the importance of sociotropic motivations in policy preferences. Early work by Kinder and Kiewiet found a sociotropic voting pattern in American politics, where voters tend to focus on collective-level instead of individual-level information.Footnote ²⁹ Sociotropic influence is highly relevant to how political perceptions form and may even outweigh egotropic considerations.Footnote ³⁰ Mansfield and Mutz found that trade preferences depended on how people perceived the economic impact of international trade on the US as a whole, and that in-group favoritism could affect opinion on trade.Footnote ³¹ Relative-gains considerations operate here insofar as people would prefer a trade policy that brings greater gains to the domestic in-group relative to the foreign out-group.

Previous work has focused on the role of relative gains under a win-win trade policy. But what happens when a trade policy involves a win-lose scenario? The underlying expectation in the literature is that the same logic of relative gains would apply: individuals would support a win-lose trade policy as long as their country is on the winning side. We argue, however, that a win-lose trade policy would be characterized not only by its relative-gains implications but also by its other-regarding ramifications. The two are not mutually exclusive. When a win-lose trade policy is implemented, both relative-gains and other-regarding concerns can be triggered. Relative-gains considerations may be mitigated by the other-regarding concerns that characterize human behavior in general.

That human beings have other-regarding social preferences is one of the most widely documented facts in social science.Footnote ³² In economics, many laboratory experiments have found individuals deviating from the “rationality” predicted by standard game-theoretic models in response to social preferences. Examples include how human players respond to the ultimatum game,Footnote ³³ the dictator game,Footnote ³⁴ and the trust game.Footnote ³⁵ Economists have formalized the ideas of altruism and inequity aversion,Footnote ³⁶ and found experimental evidence for such behavior.Footnote ³⁷ Recent research has also found neural evidence for altruistic and inequity-averse preferences in human beings.Footnote ³⁸

Such other-regarding motivations can influence economic decisions and policy preferences.Footnote ³⁹ Examining anthropological, experimental, and survey evidence, Fong, Bowles, and Gintis suggested that reciprocity motives often play an important role in shaping public opinion on redistribution.Footnote ⁴⁰ Relatedly, in Johnson and colleagues’ experiments, people displayed a high willingness to punish free riders in public goods games.Footnote ⁴¹ On trade issues in particular, Funk found from the American National Election Studies data that societal motivations could be important in determining policy attitudes.Footnote ⁴² Lü, Scheve, and Slaughter found that people were more supportive of protecting a domestic industry when their monthly income was higher than the monthly income the average worker in that industry earns.Footnote ⁴³ While this study does not consider relative gains in the IR sense or touch on the welfare consequences for foreign states, it demonstrates the role of inequity aversion in public support for protectionism.

We believe that such social preferences can also extend to foreign citizens: people want themselves and their national in-group to do well, but they also do not want to see themselves doing well at the direct expense of others. Research has shown that people have a strong psychological need for a positive self-image, and that other-regarding motivations in human beings can also extend toward out-group members.Footnote ⁴⁴ Recent work has also suggested the prevalence and importance of social preferences in IR.Footnote ⁴⁵ Building on prior work, we argue that other-regarding considerations can interact with relative-gains concerns in individual trade preferences. Consider a trade policy that benefits the domestic economy at the expense of a foreign economy. If relative-gains considerations are strong while social preferences are weak, then domestic citizens are likely to support this policy. Yet if social preferences are strong while the relative-gains considerations are weak, domestic citizens may oppose it. In this way, the relevance of relative gains in shaping public opinion toward trade is conditional on the existence and salience of other-regarding preferences.

Experimental Design

We conducted a national survey in the US in August 2018 using Amazon Mechanical Turk (n = 1,733).Footnote ⁵¹ Respondents were randomly assigned to one of eight experimental groups, which were shown different vignettes. Appendices A and B (in the online supplement) show the experimental instrument and the covariate balance across the groups.

We conducted a series of robustness checks that controlled for different sets of demographic and attitudinal variables in ordered probit regressions (see Tables A1–A4). Like Rho and Tomz,Footnote ⁵² we also replicated our findings after reweighting the survey data to match the population benchmarks in age, gender, education, and party identification (see Appendix G). Our main conclusions remained unchanged across these robustness checks.

Our experiment begins with a scenario where the US proposes to [remove / impose] import limits on [China / Country X]. Figure 1 summarizes our experimental design.

Figure 1. Design of study

Respondents in the “remove” scenario were told that the removal of the import limits would increase both American citizens’ welfare and [Chinese / Country X's] citizens’ welfare—a win-win trade policy. Half of these respondents were subsequently given an additional vignette saying that the gains enjoyed by [Chinese / Country X's] citizens would be significantly greater than the gains enjoyed by American citizens; the others were not given the additional vignette. This additional vignette imputes relative gains to the foreign country. If relative gains affect trade preferences, we should expect respondents to be less supportive of removing import limits on [China / Country X] when given the additional vignette. This provides a direct test of the effect of relative gains on trade opinion.

Respondents in the “impose” scenario were told that the imposition of the import limits would increase American citizens’ welfare and decrease [Chinese / Country X's] citizens’ welfare—a win-lose trade policy. A randomized subset of respondents were subsequently given an additional vignette saying that the losses suffered by [Chinese / Country X's] citizens would be significantly greater than the gains enjoyed by American citizens; the others were not given the additional vignette. This additional vignette implies even greater relative gains for the US under a win-lose scenario, but can also evoke greater other-regarding concerns, as foreigners are hurt more. If relative-gains considerations dominate other-regarding considerations in determining trade preferences, we should expect respondents to be more supportive of imposing the import limits on [China / Country X] when given the additional vignette. However, if other-regarding considerations dominate relative-gains considerations, they should be less supportive. Here, other-regarding considerations are inferred from the data. We also check our conclusions by analyzing the motivations expressed by respondents in their open-ended responses (see next section).

The literature in social psychology would lead us to expect relative-gains considerations to prevail in the “remove” (win-win) scenario and other-regarding considerations to dominate in the “impose” (win-lose) scenario. Part of the reason is that humans have an innate need for a positive self-image.Footnote ⁵³ Indeed, some psychologists believe that this is the “master motive” of human beings.Footnote ⁵⁴ Relatedly, self-regulation theory maintains that individuals are intrinsically motivated to uphold moral standards,Footnote ⁵⁵ and self-determination theory proposes that people have an innate psychological need for “relatedness,” which makes them intrinsically motivated to care for others.Footnote ⁵⁶

To uphold their positive self-image, human beings are motivated to avoid inflicting negatives on others, including foreigners.Footnote ⁵⁷ Recall that in the win-win scenario foreigners continue to gain from trade, whereas in the win-lose scenario they are hurt by the proposed trade policy. We should therefore expect other-regarding concerns, in the form of not wanting to hurt or take advantage of other people, to be salient in the win-lose scenario but not in the win-win scenario.Footnote ⁵⁸

Five nuances of the experimental design are useful to note:

• • Survey instruments based on import limits are frequently used in trade opinion research. Examples include Lü, Scheve, and Slaughter; Rho and Tomz;Footnote ⁵⁹ and the trade sections of the American National Election Studies surveys adopted by Blonigen; Hainmueller and Hiscox; Hays, Ehrlich, and Peinhardt; and Scheve and Slaughter.Footnote ⁶⁰ Survey instruments manipulating welfare gains or losses for citizens (rather than countries or governments) are also common in research on trade opinion.Footnote ⁶¹

• • China is a useful case for exploring the relevance of relative gains because it is a country not favored by most Americans, especially in the midst of a heated trade war between the US and China.Footnote ⁶² Thus, China provides a hard case for testing the interaction between relative-gains and other-regarding preferences in trade, compared to “Country X.”

• • We also use Country X as the hypothesized trade partner because we want to study how relative-gains and other-regarding considerations interact in trade opinion independent of the influence of the trade partner's identity. Including Country X in our design allows us to additionally test whether and to what extent our findings are sensitive to China and the trade war.Footnote ⁶³

• • In the control group of the “remove” scenario, we did not stipulate that the welfare gains were equal for the two groups of citizens. Because equal gains in trade are inherently associated with the concepts of fairness and equality, which also affect trade preferences,Footnote ⁶⁴ priming the respondents to think about equal gains could introduce an unintended treatment to the control group.

• • We did not include the win-win welfare implication for the “impose” scenario because it goes against economic theory that imposing import limits will generate gains for both countries. Similarly, we did not include the win-lose welfare implication for the “remove” scenario because it goes against economic theory that removing import limits will cause losses for the trade partner.Footnote ⁶⁵

After reading the vignettes, respondents were asked how much they supported the given trade policy on a seven-point scale from 0 (“strongly oppose”) to 6 (“strongly favor”). They also provided open-ended responses to explain their preferences.

Experimental Results

To test whether relative-gains considerations affect trade preferences, we compare the groups randomly assigned to the “remove” scenario—a win-win trade policy (Table 1). If relative gains are important, support for the policy should decrease when the additional vignette (relative gains for the trade partner) is introduced. As Table 1 shows, this is indeed the case when the trade partner is China: respondents’ support for the policy decreased by 0.71 on the seven-point scale when they learned that Chinese gains would outweigh American gains (p = 0.0004, n = 435). Support also decreases, but not as much, when the trade partner is Country X: respondents’ support decreased by 0.29 when they learned that Country X's gains would outweigh American gains (p = 0.0828, n = 415). These results suggest that relative gains can affect trade opinion in a win-win scenario: if both sides are gaining, people want to gain more than their foreign trade partner. The relative-gains concerns are particularly salient when the trade partner is China.

Table 1. Average treatment effect among groups presented with the removal of import limits

Notes: The dependent variable is support for the removal of import limits, on a seven-point scale from 0 to 6. The additional vignette says that the gains enjoyed by Chinese or Country X's citizens would be greater than the gains enjoyed by American citizens. All t-tests are two-tailed.

Next, we compare the groups randomly assigned to the “impose” scenario—a win-lose trade policy (Table 2). If relative-gains concerns dominate, then support for the policy should increase when the additional vignette (greater relative gains for the US) is introduced. But it does not. When the trade partner was Country X, respondents’ support for the policy decreased by 0.80 on the seven-point scale (p = 0.0001, n = 445). Surprisingly, this decrease remained substantial (0.57) even when the trade partner was China (p = 0.0057, n = 438).

Table 2. Average treatment effect among groups presented with the imposition of import limits

Notes: The dependent variable is support for the imposition of import limits, on a seven-point scale from 0 to 6. The additional vignette says that the losses suffered by Chinese or Country X's citizens would be greater than the gains enjoyed by American citizens. All t-tests are two-tailed.

These results suggest that other-regarding preferences in trade are important not only domesticallyFootnote ⁶⁶ but also internationally. Social considerations remain relevant even in the context of foreign rivalry amplified by a heated trade war. Relative-gains considerations can influence trade opinion, but they can also be countervailed if the trade policy presents a win-lose scenario that harms the trade partner.

The results also seem to indicate stronger relative-gains considerations and weaker social considerations when the trade partner is China.Footnote ⁶⁷ If this is the case, we should observe a clearer pattern from respondents who are more nationalistic. We therefore subset our analyses to study the nationalists in our sample, those likely to hold stronger anti-Chinese sentiments.Footnote ⁶⁸ The evidence suggests that among nationalists, relative-gains concerns are particularly salient, and social preferences more subtle, when the trade partner is China instead of Country X (Figures 2 and 3). In Appendices D and E, we further show that subset analyses of (1) hawks versus doves and (2) Republicans versus non-Republicans follow a similar empirical pattern: hawks and Republicans behave like nationalists, while doves and non-Republicans behave like non-nationalists.

Figure 2. Approval rate for removal of import limits by nationalism

Figure 3. Approval rate for imposition of import limits by nationalism

Which Forms of Other-Regarding Preferences Were at Play?

The results suggest that social preferences can affect opinion toward trade. But which specific forms of other-regarding preferences were at play? We believe that altruism and advantageous inequality aversion would be most relevant given our experimental design.

An individual is altruistic if “her utility increases with the well being of other people.”Footnote ⁶⁹ A large body of research has shown that people suffer a moral cost (disutility) from causing harm to others.Footnote ⁷⁰ In the win-lose scenario, respondents in the treatment group would be actively inflicting negatives on foreign citizens if they supported the proposed trade policy. This could activate their altruism and empathy. Such concerns, however, would not be activated in the win-win scenario because refusing to support the proposed policy would not actively cause harm to foreign citizens compared to the status quo.

Also consistent with our theoretical framework is advantageous inequality aversion, “the loss individuals incur because others have worse material outcomes than they do.”Footnote ⁷¹ If this form of inequity aversion operates at the international level, then domestic citizens will incur utility loss when foreign citizens have worse outcomes than they do. In the win-lose scenario where foreigners would have worse outcomes than Americans, the proposed trade policy in the treatment group would generate an even greater welfare gap between domestic and foreign citizens. Respondents driven by advantageous inequality aversion would then be less supportive of the proposed trade policy when they read the treatment vignette. This does not apply in the win-win scenario, however, because there is no advantageous inequality in that scenario.

To track the relevance of altruism and advantageous inequality aversion, we examine the open-ended responses in the win-lose scenario. We focus on whether and how frequently the respondents expressed other-regarding concerns, and what exactly these other-regarding concerns were, across different experimental conditions. This allows us to evaluate the argument that relative-gains considerations, which our experiment directly manipulated, can be offset by the respondent's other-regarding preferences, which are inferred from the data.Footnote ⁷²

We use a two-stage approach to analyze the open-ended responses. First, we categorized responses into four groups: those displaying other-regarding preferences (e.g., “I oppose because it will strongly hurt the other country”); those displaying self-serving preferences (e.g., “Because [I] am selfish and want what is better for my country”); those raising retaliation concerns (e.g., “China owns a significant amount of the United States’ debt. It is best not to provoke a trading partner, that has significant leverage over you”); and those that were interpretable but did not fit into any other categories (e.g., “Business does not need government interference. Free trade!”).Footnote ⁷³ Second, we broke down the responses that displayed other-regarding preferences, and classified them according to the type of other-regarding preferences implied: altruism/empathy (e.g., “I don't want anyone to suffer”); equality/fairness (e.g., “We should have equality”); cosmopolitanism (e.g., “I oppose this deal because I am a globalist, not a nationalist”); and others (e.g., “It's not moral”).

Our first-stage analysis provides further evidence that in the win-lose scenario individual trade attitudes were influenced by other-regarding preferences (Figure 4). When told that foreign losses outweigh domestic gains, respondents were more likely to justify their views based on their other-regarding preferences on the one hand, and less likely to explain their opinion based on their self-serving preferences on the other hand. Where the trade partner was China, the proportion of other-regarding responses rose by sixteen percentage points (p = 0.0011, n = 388) when the additional vignette was introduced, while the proportion of self-serving responses dropped by the same percentage points (p = 0.0017, n = 388). The empirical pattern is nearly identical where the trade partner was Country X.Footnote ⁷⁴

Figure 4. Coding of open-ended responses by treatment condition in the win-lose scenario

Probing further, our second-stage analysis suggests that altruism and inequality aversion were the most relevant forms of other-regarding preferences expressed in the win-lose scenario. Among respondents who expressed other-regarding preferences in the open-ended responses, most made it clear that they did not want to harm foreign citizens, or that they did not want to make foreign citizens suffer (Figure 5).Footnote ⁷⁵ Equality and fairness were also important to some respondents.Footnote ⁷⁶ A small minority also viewed themselves as global citizens, and consequently believed that trade deals should be made in a way that also takes foreign welfare into consideration.Footnote ⁷⁷

Figure 5. Disaggregation of other-regarding responses by treatment condition in the win-lose scenario

The results suggest that altruism and advantageous inequality aversion contributed to the generally low support for the win-lose trade policy. But alternative explanations should also be considered. First, fears of a trade war could affect our results: respondents might worry that China or Country X would respond to significant welfare losses by retaliating with a similarly hostile trade policy.Footnote ⁷⁸ This explanation, while logically possible, seems unlikely as we find no increase in the percentage of open-ended responses that raised such retaliation concerns in the treatment group (Figure 4). To investigate further, we also subset our analysis by individual risk preference (see Appendix D). We find no evidence that risk-averse respondents—who should be more likely to fear retaliation—were systematically more opposed to the trade policy in the win-lose scenario when given the additional vignette. This further mitigates the concern that the treated respondents in the win-lose scenario reacted the way they did purely due to fears of retaliation from China or Country X.

Another interpretation pertains to respondents’ expectation of future cooperative- ness from China or Country X. It is possible that respondents strategically avoided causing harm to the trade partner in exchange for more favorable trade policy from China or Country X in the future. However, while some open-ended responses suggested the importance of free trade, which could be interpreted as evidence in favor of this mechanism, these responses were rare (see the category “Cosmopolitanism” in Figure 5). Nonetheless, that the results were driven by a global form of utilitarianism may be harder to rule out. Our additional vignette in the win-lose scenario may have driven utilitarian concerns in that it implied the global welfare level would decrease due to the proposed trade policy. Although very few open-ended responses displayed such concerns, we find that these responses appeared in the treatment group only, and might hint at a different but potentially very interesting form of other-regarding preferences that is not covered here.

While hand-coded content analysis can help us better understand the motivations and mechanisms behind the respondent's choice, one major shortcoming of manual coding lies in its replicability. To address this concern, we additionally conduct two separate sets of dictionary-based content analyses—one based on the Moral Foundations DictionaryFootnote ⁷⁹ and the other based on our own dictionary. Their findings converge with each other, as well as with the hand-coded analysis. We document the dictionary-based analyses in detail in Appendix F.