Technology and Trade Wars

Abstract

An increasing globalization of value chains has been one of the most important features in the world’s economy. Intermediate or processing trade has been increasing at a rapid pace, becoming a crucial part of world trade. Many countries’ exports—including those of China—are economically less significant than they look, because they consist in imports, subsequently re-exported, and intermediates, modestly reprocessed. The effects of international trade on labour markets are controversial, causing a reshaping of the value chain or slowing down the unwanted transfer of technology. However, the US is well positioned for a trade war, since its limited reliance on foreign trade. As the recent economic crisis has shown, trade may be powerfully levered by financial flows to spread contraction effects internationally. The US is concerned for its technological leadership that may be compromised by a continuous leakage of technologies to Chinese firms and by their tendency to copy high tech products and steal intellectual property rights. China is adopting policies to upgrade technology and product quality, aim to struggle against the rising pollution and the falling exports. Nevertheless, US may contrast technology exchanges across borders in different ways. A real multilateral cooperation and international institution building appear to be the only response not only crucial and practically effective, but also commanding an image of vigor and reach, capable to overturn the current expectations.