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Abstract

This article offers a theory that can explain a relatively open international trade system as corresponding to a non-cooperative (in the game-theoretical sense) outcome of bargaining interactions between states. Such a non-cooperative outcome, as will be shown, can be expressed as a subgame perfect Nash equilibrium between several states or trading blocs. This type of Nash equilibrium does not lead countries to complete "free" trade, but to an outcome that is closer to what is usually called "managed" trade. The theory also shows that under certain circumstances, this Nash equilibrium corresponds to a trade war similar to the one that broke out in the 1930s, and has the advantage of explaining the emergence of large trading blocs. Also introduced is the concept of a two-dimensional strategy when actors use two independent instruments as policy tools and establish the existence of a unique Nash equilibrium between three actors optimizing in two instruments.

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