"Competitive Liberalization": a Tournament Theory-Based Interpretation

The current U.S. trade policy of "competitive liberalization" includes the following prominent features: stimulating a competition among trading partners for access to U.S. markets; the inclusion of provisions in trade agreements not directly related to market access; and a greater role for foreign and security policy in U.S. trade policymaking than in the past. I adapt the theory of rank-order tournaments to provide a rationalisation for these three features and explore their implications for the design and sequencing of preferential trade agreements. The role of trade diversion and its relationship to these features assumes a key role in this analysis.