Chapter 3 develops a theory of the domestic politics of intra-industry trade. It argues that changes in the nature of trade away from endowments-based trade to two-way trade within industries change the structure of preferences over trade policy and the way that actors mobilize politically in order to influence trade policy. This, in turn, affects trade policy outcomes and the ease with which trade agreements are concluded. First, I argue that the distributional effects of intra-industry trade drive a wedge through industry preferences over trade policy. As intra-industry trade increases, globalized firms support openness, and smaller, domestic-oriented firms within the same industry support protection. Second, these heterogeneous firm preferences change the ability of industries to overcome collective action problems and organize politically to influence trade policy. I argue that industry associations are hamstrung in their ability to lobby while individual firms have a greater incentive to lobby alone for their preferred policies. Third, exporters will overwhelm domestic-oriented firms in their ability to lobby, and as a result, tariffs will be lower in industries with higher intra-industry trade, though this may not be the case with non-tariff barriers to trade.

This chapter examines the relationship between intra-industry trade and trade policy outcomes. Through a cross-national time-series analysis of trade liberalization in developed economies, the chapter shows that industries with higher IIT enjoy lower tariff levels, controlling for leading alternative explanations from the literature. This tests the hypothesis that intra-industry trade is less politically controversial and easier to liberalize than classic, endowments-based trade. However, this chapter also shows that IIT is associated with higher non-tariff measures, a new and significant finding, which is discussed as it pertains to the book's arguments about intra-industry trade’s winners and losers.