Cue-Taking in Trade Politics: Firm Responses in a Competitive Landscape

• In Event: Firms in Trade with China

Abstract

Research has shown how industry-level variation or heterogeneity among firms within the same industry are key determinants of the winners and losers of globalization. Yet, there is little empirical data on which cleavage firm managers perceive as more decisive and politically important. This paper seeks to address this gap by examining how firm managers perceive the distributional impact of trade liberalization and the potential for political coalition building. We argue that due to the complex nature of trade agreements, firms rely on information shortcuts from multiple actors, including co-industry firms and firms in the upstream and downstream. We explore this cue-taking process through a survey experiment with Japanese firm managers, examining how they react to the impact of China’s potential entry into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Our findings reveal a notable pattern of cue-taking from other firms, particularly a tendency for firms to distance themselves from larger counterparts within their industry. Despite the conventional view that firms generally take positive cues from co-industry firms and align their actions through industry groups, we find that positive views presented by large co-industry firms trigger negative evaluations by firm managers. This pattern is especially salient among managers of small and medium-sized firms, but also among large firms. This research contributes to understanding the micro-foundations of politics of firm heterogeneity, demonstrating how the expectation over the distributional effects of trade is formed and translated into coalition building among firms.

Authors

• Sayumi Miyano, Harvard University

• Jialu Li, Harvard University