Unilateralism in a Multilateral World

This paper addresses the interplay between unilateralism and multilateralism. I first describe theirrespective stylized facts. I next present a simple, multi-country model with high initial tariffbarriers and with the features that have always been of paramount concern to policymakers, allowgovernments to negotiate multilateral agreements, and analyze the resulting equilibrium. I thenconsider the possibility of unilateralism and find a role for a system with features remarkablysimilar to contemporary unilateralism. The relationships between multilateralism and unilateralismare subtle: Unilateralism has the properties it has because the world is multilateral (the insurancetriangle); to be useful unilateralism requires a multilateral component of some type; this typeresults from a basic compatibility problem between those who negotiate multilaterally and thosewho establish unilateralism.