New Champions of Preferential Trade? Two-Level Games in China’s and India’s Shifting Commercial Strategies

Following decades of relative isolation, China and India have become the world’s largest new traders. In this paper, we focus on their Preferential Trade Agreements (PTAs). While the two economies initially followed similar paths, with a growing number of PTAs signed in the first decade of the 21st Century, since 2011 India has taken a U-turn and stopped completing them. China, on the other hand, has widened and deepened its trade agreements. We present a novel theoretical framework to analyze international economic negotiations by emerging economies and use it to study the puzzling divergence of the trade policies of China and India. By adapting the two-level game framework to emerging economies, we argue that there are key differences in the political economies of countries like China and India (compared to Western industrialized ones), which requires a more specific focus on the domestic side of the two-level game. We show that accounting for non-legislative domestic ratification processes and for iterative games and experiential learning by domestic actors are crucial in understanding the trade strategies of emerging economies. As such, we go against the tendency of much of the literature to explain economic relations of large emerging economies by looking at external systemic factors. Although we do not deny that international politics matters, we suggest that given the size and complexity of countries such as China and India, their domestic politics trumps international politics.